(Updates with Fed scrutiny in last two paragraphs.)
Oct. 2 (Bloomberg) -- Ian Taylor, chief executive officer of Vitol Group, said Brent prices remain too high as political risks attract financial investors to the oil benchmark.
The marker, used to price more than half of the world’s crude, is “a tad high,” the CEO of the world’s largest independent oil trader said. Global fuel demand is “not particularly strong,” limiting the scope for Brent to advance next year, Taylor said in an interview at the Oil & Money conference in London yesterday.
“Brent is the global benchmark and attracts most of the funds, making it, in my view, a tad high,” Taylor said. “The Brent price contains elements of global political concern, such as Syria, which has little to do with oil markets.”
The North Sea crude soared to a six-month high on Aug. 28 as the threat of a U.S. military strike against Syria in response to the country’s alleged use of chemical weapons fanned concern that a wider conflict may disrupt Middle Eastern oil exports. Brent traded for $108.30 a barrel on the London-based ICE Futures Europe today, $6.19 more than U.S. benchmark West Texas Intermediate on the New York Mercantile Exchange.
Geneva-based Vitol made revenues of $303 billion last year, trading 261 million metric tons of crude and refined products, according to the company’s 2012 annual report.
Brent has retreated 5.2 percent from a month earlier as a United Nations Security Council Resolution to disarm Syria’s chemical weapons allayed the threat of armed U.S. intervention. The grade’s three weekly declines in September represent the longest falling streak since April.
Despite the calming of tensions, bets by hedge funds and other money managers that Brent will advance remain about 57 percent higher than a year ago. Net-long positions held by speculators were at about 168,000 contracts in the week to Sept. 24, compared with 107,000 a year earlier, ICE data show.
“I can’t see a lot of reasons to be particularly bullish,” said Taylor. The drivers for the oil market for the rest of this year are all about supply, he said.
Commodity prices may become inflated in coming years as regulation under consideration in Europe threatens to make liquidity “significantly worse,” Taylor said yesterday during a panel discussion at the Oil & Money conference.
“I worry, that could make our business much more difficult and probably push up prices where they shouldn’t do because nobody will be able to risk arbitrage,” Taylor said.
Oil markets may also suffer adverse, though limited, effects over the next few years as U.S. investment banks “diminish their activities” in commodities trading because of stricter regulation, he said.
The U.S. Federal Reserve has expanded its scrutiny of banks’ physical commodities operations to encompass businesses run by Goldman Sachs Group Inc. and Morgan Stanley that Congress had previously authorized.
The Fed is examining all legal and regulatory exemptions that allow banks to participate in commodities markets, said a person briefed on the process who asked not to be identified because the review is confidential. The appraisal, intended to minimize potential risks to the financial system, widened since the Fed said in July that it’s reconsidering its landmark 2003 decision to grant some lenders, such as Citigroup Inc. and JPMorgan Chase & Co., permission to expand into raw materials.
--With assistance from Cheyenne Hopkins in Washington and Michael J. Moore in New York. Editors: Raj Rajendran, Stephen Voss