Publications: Papers

Don’t Kill the Oil Speculators: How Commodity Transactions Promote Price Stability (The International Economy, Winter 2010)

In July 2010, Britain’s Prime Minister Gordon Brown and France’s President Nicolas Sarkozy called for a global program to stabilize oil prices, stating that “volatility damages both consumers and producers.” To address the issue, they demanded that international security regulators tighten rules and supervision to “reduce damaging speculation.” They also called on the world’s producers and consumers to cooperate on reducing price swings. Bluntly, they advocated strong government intervention into energy market operations. Six months later, prices did stabilize. Remarkably, oil and natural gas prices remained steady during a two-month period of record cold weather that spanned much of the globe. Energy prices did not rise during the cold spell for the first time since controls were removed from markets more than thirty years ago. Prices remained stable in December 2009 and January 2010 for three reasons: energy commodity markets had finally matured, financial institutions had encouraged a large number of passive investors to allocate a portion of portfolios to commodities, and the attention of energy policymakers was elsewhere.