External factors are manipulating prices, says businessman

BY AARTI NAGRAJ | ENERGY | PUBLISHED: 25TH FEBRUARY 2016 AT 10:50

The recent rout in the oil market is being caused by external factors unrelated to supply and demand, a senior businessman has claimed.

Oil prices have plummeted to multi-year lows in recent months after touching highs of around $114 per barrel n mid-2014.

The volatility has been blamed on an oversupply glut caused by increased shale oil production in the United States and Iran’s re-entry into the market following the removal of sanctions.

On the other side, fears of slackening demand have also dragged on prices as China’s economic growth slows.

However, in an exclusive interview with Gulf Business, the chairman of United Arab Emirates-based conglomerate Kanoo Group slammed the perception of imbalance in the market.

“The reason the price is going down – in my honest opinion – has nothing to do with supply and demand. It has to do with people making money,” Mishal Kanoo said on the sidelines of an event organised by Entrepreneur’s Organisation in Dubai.

“Countries that sell oil do not set the price. And the countries that buy also do not set the price. So who sets the price? The financial intermediaries who are the investment banks who own the papers and sell it to governments.

“If I’m being a smart investor, I want to keep the prices as low as possible so that I can buy as much as possible. And once that happens, I will raise the price as much as possible,” he added.

Kanoo claimed a similar scenario happened in 2003 when oil prices stood at roughly $35 per barrel.

“By 2007-2008, prices hit a high of around $147 per barrel. That’s a five time multiple. In four to five years are you saying that the world economy grew five times? So how did it move?

“What you have to do is follow the money and what it tells me is that there are certain classes in the world tending to make a lot of money.

“There are people playing with other people’s lives through making money for themselves.They haven’t worked a day in their lives – they are buying and selling something and moving the prices up and down because it suits them,” he explained.

Regionally, the impact of oil prices on businesses is not necessarily a direct one, Kanoo added.

“The whole region is based on government fiscal spend. So if government fiscal spend slows down – irrespective of the price of oil – the economy slows. So let’s say even if the price of oil was $150 per barrel and the government decides to contract spending, then businesses will suffer.”

The entire interview with Mishal Kanoo will be published in our March issue, out on stands next week