Transparency becoming major issue for global oil market, says expert, with concerns that prices are subject to manipulation

Updated: Thursday October 17, 2013 MYT 3:38:35 PM

Transparency becoming major issue for global market, says expert

SINGAPORE: Political and public interest in oil markets remains high with concerns that prices are subject to manipulation, delegates at the World Energy Congress were told Thursday.  The concern comes even though recent academic studies suggest that oil prices are driven primarily by the fundamentals of supply and demand. A panel of industry experts at the congress held in Daegu, South Korea on Tuesday noted that shifts in global and regional oil markets, trading of oil futures in emerging financial markets such as Dubai and Shanghai, growing Russian energy exports to Asia and booming US shale oil production could have a significant impact on price discovery.Edward L. Morse, managing director and global head of Commodities Research atCitigroup in New York, said that transparency is becoming a major issue.

In noting the rise of non-OECD (Organisation for Economic Co-operation and Development) economies in the global energy market, Morse said: “This is the month in which China overtakes US as the largest importer of crude oil and the rise of non-OECD markets brings additional challenges in the quality and transparency of data.”

“China needs to take the lead if the world is going to become more transparent,” he said in a statement made available here.

Morse also said that in order help tackle challenges, the US needs to overcome regulations and prohibitions on the export of crude oil following the boom in shale oil and gas production in recent years.

Other speakers argued that global oil benchmarks such Brent, WTI and those published by the industry media are still fair and transparent in calculating pricing.

“The question is not whether the price is right. It is whether you can have policies that can make the price friendlier towards you,” said Jorge Montepeque, global director of market reporting for Platts, a leading global provider of energy and petrochemicals information.

Montepeque pointed to two big trends that could prompt a change in benchmarks.

First, the West is not comfortable with prices that stand at US$110 per barrel while demand from Asia is rising fast, shifting the global landscape.

“I wonder what is going to happen in the next five to 10 years as markets evolve and maybe benchmarks evolve?” Montepeque said.

Ali Hached, senior adviser to the Algerian Minister of Energy and Mining, said the rise of Asian demand “is being confirmed every day and that means we need a benchmark for Asia.”

Speaking from the perspective of an oil producing country, Hached believes that current oil prices are generally based on the fundamental concept of supply and demand.

Tarka Resources president and chief executive officer Gary King noted that if change comes, it may be slow.

The former CEO of Dubai Mercantile Exchange cited the “tremendous” risks, enormous amounts of capital and potentially hostile environments that hydrocarbon companies face.

“The oil industry is conservative when it comes to changing practices and adopting new benchmarks,” King said.

The World Energy Congress is the triennial flagship event of the World EnergyCouncil. – Bernama