Oil speculators aim to make $60-$ 70 per barrel seem normal

Aug 16, 2005 02:00 AM

An abnormal rise in oil prices has reached a threatening level in the world economies. The aim of the speculators is to make $ 60-$ 70 seem normal, which was never even imagined before.
Oil prices have reached the $ 70 limit, showing a nearly 100 % increase over the last year. Rising prices have doubled Turkey’s cost of oil, increasing the cost to $ 4 bn.

Barrel prices of crude oil closed at $ 66. The rise in oil prices began last year, particularly because of an increase in China’s demand. China has a rapidly growing industry but experienced problems in the production and presentation of the oil market, which were perceived as grounds for the price; however, experts think that differences between oil produced and oil demanded is the cause of increase in oil prices.
Although it is discussed that attacks towards the distribution channels of Middle East oil have played an important role in price increase, it is suggested that speculative movements in the international markets are effective. Experts say when production, transportation and risk factors are included, the prices should be around $ 35-40 emphasizing that the rest is the job of profit-seeking speculators.

To achieve their targets, speculators use “future” and “forward” markets to sell risky products. “Cashable oil shares”, which began to be traded in the London Stock Exchange, have become tools of increase in the market. By increasing prices, the aim of the oil giants is to make $ 60-70 seem normal, an amount unimaginable before.
Professor Abdurrahman Satman says: “The production cost is about $ 10 a barrel. The price can at most be $ 35-40 a barrel. However if the price comes close to $ 70, this is called speculation.”

According to Satman, behind the speculative movements are big oil companies. Western companies use the conflicts at the oil production regions to obtain larger profits. Noting, the anomaly should be questioned as to who profits most from it. Satman indicates oil producing countries and oil firms profit the most from the anomaly.
Satman also notes that the surging price raises the production costs in Turkey but that that should not be regarded as a great problem. Satman says: “Taxes constitute 75-80 % of the gasoline prices in Turkey. The state bills the cost from the exports to the consumer and the consumer pays it.” According to Satman the surging prices will not generate great risks with regard to the current account deficit.

According to the data issued by the State Institute of Statistics (DIE), Turkey’s oil exports’ cost dropped 5,2 % in June since last June and increased 34.7 % relative to the previous June’s exports. Turkey’s oil cost rose 36.8 % during the 2005’s first half, making it $ 3,8 bn.
The oil bill has kept growing each year due to the surging prices in international markets and the growing demand. Turkey spent $ 4.1 bn in 2002, $ 4.8 bn in 2003, and $ 6.1 bn in 2004 to buy oil.

Asst Prof. Mustafa Acar pointed out the role of the problems in the production besides speculative movements in high oil prices. Acar said for the present situation: “It is terrible, no matter from which aspect you look at it,” and he emphasized the insecure atmosphere of the production areas and the effect it has on oil transporting canals.
According to Acar, there is great role of speculations for oil prices’ increasing from $ 30 to $ 60, however its further increase is not likely.

John Berry, from Bloomberg Agency, noted in his article published in the American Transport Topics Magazine that the oil price should be about $ 25 according to the calculations and everything in addition to that stems from speculations.
Alan Greenspan, President of American Central Bank, indicated in a budget meeting that speculations of purchasing large amounts of crude oil was the real reason for the price increase.

Source: zaman.com
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