Table Anthropometrics

A new European oil market

Terenzio Longobardi

The website of the Authority for Electricity and Gas is available on this document, entitled "Preliminary study of feasibility for the creation of a new European oil market "commissioned by the Ministry of Economic Development to identify possible solutions to the problem of inadequate levels of investment and the instability of oil prices.

The Italian government's position is known: the problem of availability and price of oil is determined solely by a malfunction of market mechanisms, in particular by an unspecified financial speculation, and therefore its resolution can not be anything other than changing the oil market mechanisms that determine the current tensions. Hence, the Authority commissioned the study.

Source www.aspoitalia.it
But we try to summarize the contents of the report that for those who were willing, I recommend reading in full, as it offers several insights.
The first part is a long discussion of the reasons that determined the dynamics of oil prices in recent years. No element seems to confirm a role of financial speculation, "Major institutions like the International Monetary Fund, the European Commission, the British Treasury and the Commodity Futures Trading Commission of the United States have said the sharp rise in oil prices in the first half of 2008 on the basis of the fundamentals of the oil market, given the lack of empirical evidence demonstrating a significant effect on prices due to financial speculation, "..." all the statistical analysis conducted so far have not shown a causal link between the increase in volumes transactions in the markets in oil futures and spot price volatility. "

short, seem to confirm our analysis on the correlation price - economic dynamics - application report - supply of oil (here) and buffalo billion barrels of virtual (here).
Yet, paradoxically, by taking the opposite view on the pretext of economic isolation, the report does not exclude the existence of bubbles associated with speculation.

After an interesting analysis of the characteristics of existing oil markets, the study then examines the evolution scenarios of supply and demand of oil. With reference to the 2008 WEO of the International Energy Agency, states that "The estimated reserves of crude oil are still considerable and are not a prelude to a scarcity of resources in the medium term. "There would be only the problem of financing the cost of the higher investment needed to extract other eight trillion barrels of available resources between conventional and unconventional. It almost seems to see oil gushing from the pages of the report.

course, the study's authors even consider ASPO on current forecasts of peak oil, but they could at least be more cautious updating the study to the WEO 2010 that, as we wrote recently, has already significantly reduced the production forecast 2008, noting the decline of existing fields and develop and that the hopes of a future increase in production is now reserved for expensive (in terms of economic and energy) non-conventional crude and ambitious as improbable new discoveries that are able to reverse a trend of opposite sign which has become the 80s.

After the analysis of some proposals for reducing price volatility in oil markets, including that of ENI in the past we have commented here, and the U.S. reform the oil markets (which has not had any effect on the dynamics of prices) the study finally concludes with the hypothesis that Italy would propose to the European Community, namely the creation of a new contractual instrument long-term oil market. "

In a nutshell, the proposal envisages the creation of a regulated platform for trading of standardized contracts for the long term, having the right to object to the physical delivery of crude oil, where a public institution performing functions of a central counterparty can offer guarantees of long-term.
In simpler terms, it would create a new oil bourse European Union (the Netherlands it is proposed as a place of physical delivery of oil processed), in which a public entity (CCP) would assume the risks of long-term contracts (2025 and beyond), both from the demand side, ensuring a reliable price consegna del petrolio alla scadenza, sia dal lato dell’offerta, selezionando gli operatori più affidabili alla consegna e assumendo gli oneri per l’acquisto del prodotto sul mercati in caso di insolvenza del produttore di petrolio. Nell’intenzione dei proponenti, questa nuova architettura del mercato petrolifero dovrebbe consentire di dare certezza agli investimenti in nuovi progetti petroliferi disinnescando le tensioni tra domanda e offerta all’origine della volatilità dei prezzi.

A mio parere si tratta di una costruzione accademica e velleitaria, senza possibilità concrete di attuazione perché sarà sempre più difficile trovare produttori in grado di garantire contratti di così lungo termine, perché costs to the community are likely to be large and the other European countries have guidelines exactly the opposite of this hypothesis. But mainly because you try to attack the problem of availability of oil on the side of an increasingly rigid rather than the demand.

should, in other words, implement active policies to reduce oil demand in Western societies, primarily by decreasing the demand for private mobility, which consumes more than 60% of imported oil. This would allow greater time and resources remaining at the same time was price not resulting in alternating cycles of expansive and recessive that might characterize the near future. But the Italian government did not even think about it, prefers to blame all the irresponsible financial speculation.