Oil’s well that ends well?

Whenever I enter a supermarket, I marvel at the range of products available, and the ingenuity of humankind in producing all these goods and getting them to the market place. The notion of free enterprise, by which each person is allowed full freedom in the world of economics to maximise their profits, has much to commend it, yet there are disturbing facets to the free market.

A topical example: I note the record oil price and the damage done to many economies as inflation has escalated sharply, causing food riots worldwide. It is not only the demand for oil that has pushed the oil price up, but speculators have played a significant role as well.

Speculators are short-term investors who have no intention of taking physical delivery of oil when they buy futures contracts. According to an executive at an oil company, the price of oil should be around $80 a barrel, 35% less than the current level of about $123 a barrel (as of late August). The futures market does allow oil producers to hedge, to plan, to achieve guaranteed prices.

Speculators can also afford the price risks that producers cannot live with. These advantages are surely radically outweighed by the harm done to food prices.
For instance, the US Congress is considering restricting unfettered speculation. They want to restrict the free market, to reduce the effect of rising oil prices.
Is it ethical for speculators to exacerbate the price movements of such a crucial commodity?

Legislation may bring a lower oil price. If it does, will food producers and retailers bring their prices down? Or is it a case of “Oil’s well that ends well?”

Fr Pierre Goldie, Cape Town