Oil cartels and consumers change strategy

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Last week the U.S. Energy Department announced that crude oil inventory had risen by 2 million tonnes to touch 356.2 MT, a near 7 % jump over the five year average stocks. This was perhaps a reaction to the latest oil demand forecast for 2010. The IEA demand forecast was up by 1.8% to 86.6 million barrels a day following China’s 28% increase in oil imports in January. This forecast will result in increased stockpiling of oil globally, and possibly save us from a oil shock in the coming months.

It is possible that the Chinese spurt in oil imports was more due to stock piling like the US. The apprehension of another Oil price spike has been strong ever since BP Chief talked of yet another Peak Oil situation of 100 mbd at Davos. Supported by the Shell and Total Chief, it underlined the intention of members of the ICE Cartel to create another oil price frenzy and a artificial demand at the ICE commodity exchange at London.

Oil price volatility has been a cause of concern globally, though demand has been sluggish especially in the OECD, during the last few years Even during the year 2007-2008 when oil climbed to the historic peak of $147, the supplies have been rising and the demand falling.

The spike of oil prices in the summer of 08 was not due to low supply or high demand but due to speculation, namely investor demand of the commodity. Investor demand in oil as a commodity has been high ever since the formation of the ICE Cartel in the year 2000 and setting up of the privately run ICE Commodity exchange at London.

The ICE cartel consisting of Europe’s oil major’s BP , Shell, and Total and the Wall Street Banking heavyweights namely Goldman Sachs, Morgan Stanley, Deutsche Bank and Society General wrested the initiative from the OPEC oil producers cartel due to its overwhelming control on online trading.

The actively traded Brent Oil of North Sea and the WTI of Texas are both controlled by this cartel and are the darling of the brokers at ICE London exchange and the New York NYMEX, dictating the Global oil price trends despite its low volumes.

In a classic case of a tale that wags the dog the Brent Oil has been the lead price indicator in oil instead of the widely traded Saudi crude.No wonder the OPEC Price Band of $25 to $35 proposed five years ago, to bring stability to oil failed, as the ICE controlled Brent Oil ruled the roost in the major OECD markets. A similar talk of a price band between $ 60 to $ 80 is now being discussed with the two cartels at loggerheads to control prices.


With Consumption in China and India now increasing, the large consumers of Asia are stockpiling themselves, to avoid getting caught in a situation like early 2008. Will it ease the ICE strangle hold on oil pricing remains to be seen.