>Flash Markets (ECONOMIC RESEARCH)

Could oil prices increase due to speculation?

Current trends in the spot oil market are not expected to be able to trigger a sharp increase in prices, even though the production cuts are pronounced, since there continues to be substantial excess capacity. The recent increase in the oil price is also linked to the appearance of several encouraging economic signs (recovery in China, etc.) and is therefore perhaps a leading signal of a stronger increase linked to speculation in addition to the rebalancing of the spot oil market seen at the end of the first quarter of 2009. It is thus important currently to determine whether the sharp increase in the oil price in 2007 and early 2008 were accounted for by speculation or not. If the answer is yes, we can again now fear an increase in the oil price that is not only due to the physical characteristics of the oil market.

We shall show, through the analysis of causalities and an econometric analysis that the futures market plays a major role in the formation of the spot oil price. The number of open long futures positions is the variable that most fully explains fluctuations in the price, which also depends on the imbalance of the spot market. This would seem to confirm the major role played by speculative positions in the formation of the spot oil price.

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