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'Look to fundamentals, not speculation'

By Wichit Chaitrong
The Nation
Published on June 5, 2008

Oil prices reflect fundamentals, not speculation, says Robert Weiner, professor of International Business at George Washington University.

Speaking yesterday, Weiner made an argument against the claim made by oil exporting countries and many financial analysts that market speculation is driving high oil prices. "Speculators serve as scapegoats for both prices and volatility. Speculators make convenient targets" he said. He said oil prices were determined by supply and demand, and expectations of future supply and demand.

He said that traders could move prices away from fundamental values in some circumstances. However, he said there was no evidence of parallel trading among commercial participants - petroleum companies or financial institutions - in crude-oil or heating-oil futures.

Oil prices have been driven by the rapid growth in the world economy. High growth was led not only by China and India, but by other developing countries in the Middle East and elsewhere, said Weiner. While demand for oil has increased rapidly, supply did not increase.

He blamed state-owned firms in oil exporting countries for being slow to up production. He also said oil futures were a reasonable basis for hedging.

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'Look to fundamentals, not speculation'

Oil prices reflect fundamentals, not speculation, says Robert Weiner, professor of International Business at George Washington University.

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