Prosper Australia

With Oil soon to hit $120 a barrel, public interest is building on the role speculators play in pushing prices higher. India’s Solution for Oil Prices: Ban Speculation by Banning Trading quotes:

“Buying stakes in overseas oil properties is proving much cheaper for India than purchasing crude on the open market. In some areas where India has purchased stakes in oil fields, it is pulling light crude oil — the kind that sets the benchmark oil price — out of the ground for less than $40 a barrel, Mr. Srinivasan said.”

We aren’t supporters of regulation. Using economic analysis we can see that any price above the $40 India can pull light crude out of the ground is economic rent. Thus in many situations, speculators are accounting for two thirds of the price of oil. We propose that the government can eradicate speculation by adopting a more effective revenue raising system. If a resource rental was charged per barrel of oil then resource hoarding would no longer be financial. The resource rental acts as a holding charge, set at approximately 5% of the value of the resource. This rate would soak up the economic rent and deter the buying and selling of oil.
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