Erm no.

Matthew Moore at The Telegraph really needs to go and have a little chat with someone over on the City Desk. This is sad rubbish.

The basic allegation is that speculators are holding oil in tankers off the coast thus pushing up petrol prices. Holding drivers to ransom as it were.

This slightly misses a number of points. Future prices for oil have been higher than spot recently: higher enough that buying spot and storing (yes, even with the costs of storage) makes a profit.

But no one is doing this and then waiting for the price to rise: that\’s not how this sort of arbitrage works. They buy it spot and sell it forward on the same sday, thus locking in their profits. they\’re not waiting for anything pother than the due delivery date.

The other mistake is this:

The amount paid for petrol by British motorists is determined in large part by the supply of oil to onshore refineries in Britain.

No, it isn\’t. It\’s largely determined by the flow of refined products coming out of the refineries (plus of course the price of crude). And there\’s a shortage of refinery space. There\’s plenty of oil to go in (the spot price is low, remember? So it\’s easy to buy stuff for immediate delivery) it\’s that the capaity for refining is limited.

In the end, those tankers of crude off the coast have no effect at all on the price of petrol onshore.

Must do better if you\’re going to write about futures markets, really.

6 comments on “Erm no.

  1. “thus pushing up petrol prices. Holding drivers to ransom as it were.”

    Funny, I thought it was that noble body, the UK Labour government, which was holding drivers to ransom on petrol prices. What it is, 70ish % of the pump price is tax, including a tax ON tax ?

    Alan Douglas

  2. Rich – I think it might be the case that the Mail just lifts copy from the Telegraph (I noticed this yesterday in the story about Ben Elton, lots of the non-quoted copy is very similar).

    Tim – I think you misunderstand a fair chunk of this too. If speculators are “buy[ing] it spot and sell[ing] it forward” then how does that not raise the spot price?

    Tim adds: Of course it raises the spot price. That’s what we want it to do. Speculation moves prices intertemporarily, remember?

    The point is that the speculators are not sitting there holding it in hte hope that the price will rise. They’ve already sold it, for delivery in x weeks/months.

  3. Then how is this true? “In the end, those tankers of crude off the coast have no effect at all on the price of petrol onshore.” You say yourself the price of crude matters?

  4. Tim there is no problem with refining capacity, the globe and Europe in particular has a surplus of it.

    The problem is that margins are so low that some refineries are not working. Margins are low because there is not enough demand for fuel.

  5. Like Mr Douglas I always thought the amount paid for petrol by British motorists is determined in large part by the Chancellor of the Exchequer.

    Nice to see the Telegraph assisting the government with a bit of populist disembling though.

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