Oil producers worldwide need to join hands and create a common transparent crude trading system to guarantee fair prices for all and stabilize the market, according to a Russian energy analyst.
Maria Belova, deputy head of the energy department at the Russian Institute for Energy and Finance, said the oil market has become deeply connected to both the global economy and the world financial system.
In comments published by the Emirates Centre for Strategic Studies (ECSSR) and Research, she said the oil market turbulence caused by the 2008 global fiscal distress showed it has become “almost a branch of the financial market” and underscored the need for efforts to stabilize prices.
“To achieve market equilibrium, closer cooperation among oil producers is required, not to consolidate their power through collective blackmail but to send credible signals to stabilize the market by providing specified oil production volumes and predictable prices as OPEC does,” she said.
She noted that oil producers face different environmental conditions, enjoy different levels of proximity to basic markets and produce oil of different qualities.
“Today, many of these factors are considered only in bilateral transactions in which price parameters are only indirectly coordinated with stock exchanges where world market price indicators are defined,” said Belova, who attended an international oil conference at ECSSR last week.
“With this in mind, it is necessary to consider the creation of a uniform oil trading system, including trading platforms with specific pricing rules that are transparent and clearly-defined for all participants…in addition, uniform registration and settlement systems for oil contracts may also be established…it could also be useful to establishment joint investment banks to develop new oil projects.”
Belova described the current pricing system as imperfect and unexplainable, adding that prices are determined by both the spot contracts market as well as “paper futures.” She said it would be more reasonable to form prices on the basis of a future commodity contracts (forward transactions) system.
“Defining the future oil price would not only take into account the basic trends of oil exploration and lifting costs, but also consider supply-demand parity more precisely…the four-fold fall in oil prices in the autumn of 2008, ongoing speculations over peak production, concerns surrounding growing resource nationalism and uncertainty regarding oil consumption forecasts all distort the market and can cause new shocks which work against the interests of oil producers and consumers alike.