They shoot traders, don’t they?

" The world cannot stand by and watch crude oil prices continue to skyrocket for no apparent reason. It is time for radical action.WHILE in Istanbul last week, a group of journalists got to talk to some share analysts, and the topic of conversation was the uncontrolled rise in the price of oil.One of the analysts grinned and said: “Line up all the options traders in the world and shoot them.”

The journalists, from various publications worldwide, who were there to cover the International Air Transporters Association’s annual general meeting, looked stunned for a moment, but were quick to smile when it dawned on them what was being said.

The same analyst opined that it was option trading that was driving up prices, drawing parallels to the attack on the Thai baht in 1997. That time it was hedge funds driving down Asian currencies.The hedge funds had since abandoned currencies because central banks the world over had wisened up to their scheme and made it difficult for the hedging of currencies to be turned into a day at the casino.

These traders have redirected their focus in the past few years to commodities, with oil being their main target.Malaysia Airlines managing director Datuk Seri Idris Jala told the same group of journalists that he no longer trusted what research houses had to say on oil prices.“After all, these companies are also the same ones with options traders who are responsible for driving up crude oil prices,” he said.

One such example is when crude oil futures made their biggest single-day jump last week, soaring nearly US$11 to US$138.54 a barrel, a rise of more than 8%.As reported by Associated Press on Monday: “Friday's jump came after Morgan Stanley analyst Ole Slorer predicted that strong demand in Asia and tight supplies in the Western Hemisphere could drive prices to a once-unthinkable US$150 a barrel by early July. In after-hours trading Friday, oil prices briefly touched US$139.12, an all-time high.”

What Slorer is saying does not make sense at all. How can Asian demand continue to be strong when every country in Asia has raised fuel prices, and Asians are talking about cutting back on usage of oil?China is generally expected to cut back its development programmer once the Olympics start in August. All its feverish development was centred on the Games, and the Chinese government has made it known that all these will slow down soon.Even in India, another country option trader see increased demand for oil, the middle class is feeling the pinch of rising oil prices.

Logic demands that when people feel the heat, they will pull back. Why then the accepted logic of oil traders that the people of India will want more, and bigger, cars?With a global recession expected, there should be less economic activity all over the world. Again, with less economic activity, shouldn’t it mean less money in the pocket, more lay-offs, and less creation of wealth?This should also reduce the future demand for oil, right? Apparently not so, according to oil traders.

To them a strike on a Shell refinery in some obscure platform in the North Sea is more significant than a world recession, as it MAY affect future supply.
Speaking of oil prices, the 78-sen increase per litre for petrol, and RM1 for diesel, locally will definitely have an impact on our own economy. The Government had repeatedly warned that the subsidies were unsustainable and had to be removed.

The Government should be commended for trying to mitigate the effects of the 41% increase in fuel prices, especially for the lower income group.Food prices are already going up and the poor will need all the help they can get.Prime Minister Datuk Seri Abdullah Ahmad Badawi announced last week that the social safety net would be widened to cover more people, and even hinted that the Government might expand the definition of poor in doing this.

However, it is unfortunate that the group most affected by the fuel and power increase is the middle class – the salaried workers, who are mostly from the private sector.
They make up the majority of the one million taxpayers out of the country’s workforce of 10.3 million – and collectively paid more than RM10bil in taxes last year.
In Malaysia, those earning less than RM3,000 per month are not taxable and thus the bulk of the Government’s income is from a narrow band of people.

Those in the top bracket – such as CEOs and heads of public listed companies – will not be bothered by the fuel price increase.The Government, in its effort to cushion the impact on the people, should not forget the salaried executives, who are not poor enough to receive aid nor rich enough to dismiss the price increases.

The middle class are the mainstay of the domestic economy, the biggest spenders. Their contributions should not be overlooked or underestimated.I am sure the Government is now looking at something to appease this group as well. I hope middle class Malaysians will not be left holding the wrong end of the stick just because options traders screw up the whole world in making a fast buck.
What we need now are lots of rifles to either shoot these traders or to force them to actually take delivery of the millions of barrels of oil they “buy” on paper.

Why not? "

by WONG SAI WAN, the star