Iran, Libya rejection of oil freeze can only make medium term price collapse
Baku, Azerbaijan, March 28
By Umid Niayesh, Dalga Khatinoglu - Trend:
Iran and Libya's rejection of the oil freeze plan can only make a medium term collapse in price more certain, and the more rapidly they re-enter the market the quicker will be the price fall, Chris Cook, the former director of International Petroleum Exchange(IPE), told Trend.
Russia and OPEC's major oil producers, including Saudi Arabia, agreed to freeze oil production at the January levels during a meeting in Doha in February.
While 11 of OPEC's 13 members which produce a half of the global oil output say they will attend oil production freeze talks next month in Doha, Iran and Libya have rejected to participate.
The proposal by the two biggest oil producers to freeze production at the maximum levels at which they can pump oil is notable only in that the parties agreed on anything at all, Cook said.
"In that sense it [the proposal] has therefore been supportive to rise oil price in the short term because it prepares the ground for coordination on production cuts as and when the pain gets too great as and when prices fall significantly in the medium term, which in my analysis will occur by summer," the expert added.
Cook, who worked as a UK financial market regulator, further said that "a 'dark inventory' of prepaid oil is now entering what has become what as a UK regulator I used to call a 'false market' in physical crude oil."
There is now a 'two tier' physical market in which one or two participants, who are aware of the true economic ownership of oil, are currently making massive profits at the expense of the majority who are unaware of the market reality, he added.
He further said that this unwinding of opaque dark inventory physical positions has caused the current market volatility and temporary 'spike' in price over $40/barrel.
"Once what are essentially illicit profits have been taken, then in my view the price will - in the absence of significant coordinated production cuts - fall significantly and test new lows," he said.
"In my view - and I gave evidence to this effect to the UK Parliament's Treasury Select Committee in July 2008 - the global market in crude oil has been, since at least 2001, subject to manipulation by those with the motivation and the financial capital to do so," Cook said.
Saudi Arabia and the Gulf Cooperation Council (GCC) states have both the necessary capital and the motivation to support the oil price, and have done so since 2009, he further remarked.
It should be noted that Cook was for ten years a UK financial market regulator, and for six years the Director of Compliance & Market Supervision of the IPE - which is now ICE Europe.