High Oil Price Bubble -- Driven by Speculation?

London, UK - 6th June 2008, 17:36 GMT

Dear ATCA Colleagues

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

We are grateful to the distinguished ATCA contributor, Prof Lord Desai of St Clement Danes, from the House of Lords, Palace of Westminster, and The London School of Economics, for his seminal contribution to the 3F -- Fuel, Food and Finance -- Global Crises Socratic Dialogue on ATCA presented as, "High Oil Price Bubble: Driven by Speculation?"

NOTE: Independent research carried out by the ATCA Research and Analysis Wing (RAW) and the mi2g Intelligence Unit does not confirm that speculation is the primary cause for the present high price of oil. Based on dialogue and mathematical calculus with a number of oil traders and energy markets experts, who are members of ATCA, the futures market may NOT be significantly responsible for the present high price of oil. This may have much more to do with fundamentals of rising demand and constrained supply, which impact the marginal price of each extra million-barrels-of-oil produced significantly. The interaction with oil traders has been instrumental in prompting the ATCA expert "Energy" team to look at the speculative portion of oil pricing and they conclude that the tangential impact is neutralised over the short term. In summary, there is a lack of foundation for accusations that speculation is the root cause for the sustained high price of energy, although over the immediate short term, it may have some part to play and schemes to dampen speculation may be helpful.

The Lord Desai of St Clement-Danes writes:

Dear DK and Colleagues

Re: High Oil Price Bubble -- Driven by Speculation?

Between February and May of this year the oil price went from below USD 90 to USD 128 a barrel, a monthly growth of 9 per cent. If the rise continued at this rate, it would mean an unprecedented doubling in price every eight months. In recent days, after the price briefly touched a high of USD 135, there has been a bout of profit-taking. Although the price fell it did not drop much below USD 125 and it has rocketed again to USD 135.

[CONTINUES] [ATCA Membership]

Best wishes

Meghnad Desai

Professor Lord Meghnad Desai -- Baron Desai of St Clement Danes -- (born 10/07/1940) is a British economist, writer and Labour politician. He is emeritus professor of economics at the London School of Economics and a Labour peer. His book, "Rethinking Islamism: The Ideology of the New Terror" [IB Tauris / Palgrave Macmillan] was published in December 2006. Born in Vadodara (Baroda), India, Desai grew up with his four siblings - two brothers and two sisters. He went straight to secondary school at the age of five, matriculated at 14, was an Honours student before he was 18, had a Master's degree before age 20, and a PhD at age 22. After he secured a Master's degree from the Mumbai School of Economics (then Bombay School of Economics), his parents wanted him to become an elite Indian Administrative Service (IAS) officer. But the qualifying age was 21, and he was still 19. In between, he won a scholarship to the University of Pennsylvania. He left India in August 1960. From Pennsylvania, where he completed his PhD in 1963, he served as an intern at the London School of Economics and got a job there in 1965. In 1989 he married fellow-economist Gail Wilson. Lord Desai has written extensively on a wide range of subjects. From 1984-1991, he was co-editor of the Journal of applied Economics. He has been both Chair and President of Islington South and Finsbury Constituency Labour Party in London and was made a life peer as Baron Desai, of St Clement Danes in the City of Westminster in April 1991.

In 2002, Lord Desai wrote a book Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism which states that globalization would tend toward the revival of socialism. He published a biography of Indian film star Dilip Kumar titled, "Nehru's Hero: Dilip Kumar in the life of India" [Roli, 2004]. He has described the book as his 'greatest achievement'. Examining Kumar's films -- some of which Desai has seen more than 15 times -- he discovers parallels between the socio-political arena in India and its reflection on screen. He discusses issues as varied as censorship, the iconic values of Indian machismo, cultural identity and secularism, and analyses how the films portrayed a changing India at that time. During the course of writing this book he met Kishwar Ahluwalia, his second wife who worked as an editor for this book. On July 20, 2004 he married Ahluwalia. Desai, then 64, and 47-year-old Ahluwalia, were both divorcees and married at a registrar's office in London. In 2005 he retired as Director of the Centre for the Study of Global Governance, which he founded in 1992 at LSE, where he is now Professor Emeritus. He is Chairman of the Trustee's Board for Training for Life, Chairman of the Management Board of City Roads and on the Board of Tribune magazine. He is an Honorary Associate of the National Secular Society.