Bleedin\’ \’Ell

Shock Horror: Will Hutton says something sensible:

To further tax Centrica, for example, whose 58 per cent tax rate is the highest in the FTSE 100, simply because the oil price has gone up is arbitrary. Is the government proposing a rebate when oil and gas prices fall?

I propose a toast to Centrica\’s PR operation. They\’ve managed to get that "highest tax rate in the FTSE 100" and the other point, that the already pay 75% profit tax on their North Sea gas extractions, into all the major stories over this weekend. That\’s a bloody marvellous piece of circulating the talking points.

Hats off to those chaps.

However, when Will starts thinking for himself he returns to usual standards:

Worse, the London oil market has been designed only to benefit its member traders. The so-called London loophole, created by the Labour government, excuses the London oil market from independent and transparent oversight. Traders\’ positions are unpoliced; the scope for market manipulation is vast, the extent unknown. Britain has resisted worldwide criticism, arguing that London-based speculation and rigging has nothing to do with the oil price rise; but the $25 a barrel collapse in the price over the last three weeks as speculators unwind their position has made the government\’s argument untenable.

By definition in a futures market there are as many people betting upon falling prices as there are upon rising ones. For futures markets are a zero sum game.

Don\’t you know that Will?

For speculators to be ramping up the market there would have to be a rise in physical stocks (or for those pumping the oil to be keeping it underground). And guess what has happened? As physical stocks have indeed been rising slightly in recent weeks then the oil price has fallen……rather the opposite (AGAIN!) of will\’s analysis.

3 comments on “Bleedin\’ \’Ell

  1. As you know there is a major debate on what influence futures contracts can have on spot prices. To the extent that $80bn or so has been invested in long futures by commodity indices, another $80bn of short futures has have to be found. If those going short do not wis to be short (for speculative reaons), or do not have a natural offsetting long, then they might have had to go long physically. Where those stocks are though is anyone’s guess – people have suggested in oil tankers on the ocean, or (John Redwood’s idea I think) car fuel tanks (but the numbers don’t stack up in this idea).

  2. a zero sum game?? depends on who and what you are counting…
    if you buy a contract for 10 dollars a barrel and later sell it for 100 dollars, you made 90….and if your buyer sells at 130 ,he made 40
    the total non zero amount is an increase of 130 bucks unless you want to count the cost to the final buyer ,who actaully bought a product..
    people certainly get rich on that zero sum game..

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