The current high price of oil (and related products) contains an element of speculation and manipulation. It is difficult to measure the exact amount.
The price of other commodities such as food, iron and precious metals contains an even higher component of speculation and manipulation. Many of these markets are easy to manipulate with a small amount of money. There is no better example than the 30% daily jump in oil prices without any change in the oil market.
The poorest half of the world does not “play” in the commodities speculation game, but they are severely affected by it. We are on the brink of civil war in many 3 world countries. Oil prices are already killing many people around the world. Millions could die in the coming years as result of the high price of oil and natural gas.
The cost of energy is affected not just by oil. For example: The cost of building a wind farm or a nuclear power station has risen significantly due to price of metal, cement, etc.
Most commodities markets, including oil, have some trade mechanisms to control trading. Most of these mechanisms are old and do not fit todayâ€™s global environment. The cost of the manipulation of commodity prices to the world is simply too high. These mechanisms were put in place originally to prevent speculation. However, they we designed in a completely different era and are currently obsolete.
We need to tighten the trading rules to reduce the level of manipulation in the market. The result should be lower prices. Example of such rules:
- Oil options cannot be traded quickly — for example, they must be held for at least three months. This will allow real players (like airlines) to use the market.
- An investor must take delivery of at least X% of the contracts he enters. This will limit the players in the market to those actually needing it.
- Higher margin requirements.
- Separation of ETFs and investment arms of active interested parties from the part of their business that is involved commercially with the commodity. To prevent conflict of interest and use of inside information.
When designing the exact measures, the market experts should be consulted, but their opinions and recommendations should be weighed against their conflict of interest. For example, the parties running the commodities markets benefit from the expanded volume and are not interested in solutions that will reduce their earnings.