NYMEX and Crude Prices

As petroleum prices have been on an upward trend over the last few weeks, there is understandable panic that this could adversely affect growth in the whole world. No doubt, the rise in the recent days has been more than substantial and it increasingly appears that the US $100 price may be breached during this year. However, the real reasons for the rise in prices are not appreciated widely as this is attributed not only to steady demand from India and China, lack of refining capacity and the effects of the OPEC cartel.

While all these reasons are fairly common, increasingly the idea that speculative behaviour is also a contributor is being mentioned. This means that solutions have come around from price controls within countries, an expansion of refinery capacity and measures to prevent price gouging and into a very bad idea by India's Secretary for petroleum. Mr. Srinavasan is quoted by Heather Timmons of the NYT stating that there should be decisive action to stop trading of crude petroleum on exchanges.

True that speculative action and endeavours to profit from further rises may lead to the rush to buy, it certainly is unimaginative for a person to consider the abolition of a market facility because its price signals are not the right ones. One would imagine that India's brilliant economists would inform the honourable secretary that this is not an effective response. The oil trading facilities as NYMEX merely provide a platform for the revelation of the spot price.