Soros Blames Oil Prices on Speculators
The record price of oil is a bubble being driven by market speculators that will only burst when the UK and United States fall into recession, a billionaire investor is reported to believe.
Legendary hedge fund investor George Soros, in an interview published by a morning newspaper yesterday, blamed the spike in oil prices – which reached $135 a barrel for the first time last week – on investors betting that the cost of oil will continue to rise.
He said that the bubble will correct, but warned that this will not happen until the US and UK fall into a recession.
Last week the British Chambers of Commerce cautioned that rocketing oil prices were pushing companies to the “absolute edge” amid speculation that the relentless increases could soon see oil hit $200 a barrel. Oil is now more than a third more expensive than at the start of the year and crude prices have doubled over the past months.
Rising global demand from emerging Asian giants India and China has, together with the slump in the US dollar, until now been thought largely responsible for the dramatic increases in the cost of crude.
However, Mr Soros said that speculation has been a significant factor.
He commented: “Speculation… is increasingly affecting the price. The price has this parabolic shape which is characteristic of bubbles.”
He added: “You can also anticipate that (the bubble) will eventually correct, but that is unlikely to happen before the recession actually reduces the demand.”
Yesterday’s comments from Mr Soros came as German leaders were reportedly calling for a worldwide ban on oil trading by speculators.
India is already said to have suspended certain trading in commodities as prices worldwide reach crippling levels.
UK motorists and companies are facing misery as oil prices continue to rise, with news last week that they are being hit with the highest monthly increase in average diesel prices this century.
There are growing calls for Chancellor Alistair Darling to scrap this autumn’s proposed 2p rise on fuel duty in Britain.
Fears are rising that unless action is taken to help ease the burden, businesses may increasingly start passing on costs to consumers, who are already being hammered by soaring food and energy bills.
Figures last Thursday showed a record number of British manufacturing firms were expecting to put prices up in the coming months as a result of oil price rise pressure.
On the New York Mercantile Exchange yesterday oil edged above $133 a barrel for sweet light crude for July delivery, extending the previous session’s gains on the back of closure of the Statfjord oil field in the North Sea and a weak US dollar.
US light crude for July delivery reached a record high of $135.09 in intraday trading last week. Brent crude, the North Sea benchmark oil, rose 43 cents to $132 a barrel.
Mark Pervan, a senior commodities analyst at the Australia & New Zealand Bank, said: “Its very much the US currency at play. The market is re-assessing the dollar and has probably taken the view that the dollar hasn’t bottomed out and may fall further.”
The US dollar steadied near one-month lows against a basket of major currencies on Monday, after falling late last week on concerns that surging oil prices could further slow the US economy.
Norwegian oil and gas producer StatoilHydro, which had shut its North Sea oil fields with a capacity of about 138,000 barrels per day on Saturday due to an oil spill, said yesterday it had restarted production at two fields, but its 19,000 bpd Statfjord A field was still shut in.
Longer-term worries that supply will struggle to keep up with demand over the next few years also continue to support prices.
Organisation of Petroleum Exporting Countries secretary-general Abdullah al-Badri said on Friday he was not worried about claimed faster-than-expected depletion of oil fields and stood by his view that high prices were caused by speculation and not supply problems.
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