FP: So, in other words, our own fear is driving up the price of oil?
FG: Well, if you are a commodity trader, you want to do your best to push the commodity price in the direction that you forecast. And obviously, when you have a lot of financial players making bets on much higher oil prices, they would like to see a self-fulfilling prophecy. They want to see oil prices reach the level that they put the bet on. So, they can spread rumors.
And if the glass is half empty or half full, they will say it’s empty.
To my knowledge, there is no oil shortage. Any willing buyers will not have a problem finding oil. Global inventories are over 4 billion barrels. In simple math, that is the equivalent of all the oil produced in the Middle East for six months.
So, the fear premium, in my view, is totally exaggerated; it’s not justified by logic or market fundamentals. Again, it’s very difficult to quantify fear. But that is the psychological factor, in my view, that is bringing oil prices to these unprecedented levels.
For instance, I don’t believe that Iran is going to cut oil exports, because Iran needs the revenue more than the world needs Iran’s oil. We have to be logical in assessing the risk. And obviously, financial players want to exaggerate the situation so that the risk premium increases and they make more money.
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