Publié le 09/07/2009
William C. RAMSAY

By all indications they have been locked up while spin doctors are writing statements for Presidents and Prime Ministers. Not since Venezuela's President Hugo Chavez seized on the idea at the end of the last century have we heard serious contemplation of an oil price band. The last forty years of experience with price volatility in commodities should by now have provided ample proof that negotiated, state-administered price bands are meaningless and confounding for markets.

Set that aside and the two Summiteers have some good thoughts. Collaboration between IEA and OPEC remains a good idea, but it predates creation of IEF and has been consistently robust. Forecasters and economists in both organizations know well the differences in each agency's outlook and their origins. Underlying numbers are drawn from the same sources or sometimes from each other - but it should come as no surprise that a supplier will describe the same elephant differently that a consumer - shared analysis but different conclusions.

Instructing the IEF to carry out a mandate "to arrive at a common long-term view on what price range would be consistent with the fundamentals" is to appear to be action-oriented while putting an impossible task before a group that cannot hope to accomplish it. Governments should turn first to their role in addressing the thorny issues that make oil supply and demand so inelastic, arguably adding more volatility to the market than speculators.

Transparency has been a priority for years and some considerable progress has been made. The Joint Oil Data Initiative, driven initially by IEA and OPEC and now managed by IEF is a good example. But many energy market data are still opaque. Financial market involvement in energy commodity markets needs considerably greater transparency and monitoring, recognizing that non commercial trading in energy commodities is ultimately a good thing. So too are more transparency and oversight.

Where President Sarkozy and Prime Minister Brown can contribute more to market stability and predictability - is by ensuring that their national projections for climate change policy, renewables penetration, efficiency gains and technology deployment are reflected in clear policy decisions and regulatory guidance to the market. Uncertainty in energy commodity markets is aggravated by policy uncertainty combined with political targetry. Why put in capacity if demand for fossil fuels will be dropping sharply? Why build refineries if biofuels are going to fill the gap? Who needs another pipeline if European incremental gas demand to 2020 is flat?

Policy-induced uncertainties aggravate the cyclical nature of energy commodity markets and create opportunities for portfolio managers to add energy to their financial strategies, probably aggravating volatility, but only because the opportunity is there.

For further input to G8 energy reflections click here [1]