Five questions to Jean-Marie Chevalier
‘This report won’t end up gathering dust in a drawer’
Jean-Marie Chevalier, lead author of the French government’s report on oil price volatility, tells EER his work has been ‘warmly received’ by Economy Minister Christine Lagarde. ‘Our work will not be in vain, believe me.’
You’ve painted a pretty worrying picture of the current situation in the sense that all the ingredients are there for the crises of the past to recur. What are the signs of a possible crisis to look out for?
An economic crisis is always bad news. It could happen tomorrow for whatever reason. Everyone was surprised by what happened to Greece. I think that we need to put in place alert signals but that’s beyond my remit. When the price of oil soared to $147 per barrel, people put that down to speculative movements and then when it collapsed to $30 per barrel, people said that it was because of the economic and financial crisis. But now look. Today it has climbed back up to $80 per barrel, in total contradiction to the physical fundamentals. There’s a dichotomy between the physical and financial realities and the relationship between the two is not something that can be modelled.
Hasn’t the oil market as a whole ultimately become too complex to be fully understood?
This report made it possible to highlight that the dynamic relationship between the physical and financial fundamentals of the oil markets ends up in what can be called an almost mechanical volatility.
|It’s a fact that toughening up regulations is technically very complicated and powerful lobbies are opposed to it|
How are actions on regulation being coordinated between Europe and the US?
The oil markets are under US control, even in Europe, so US rules are the ones that really matter. It is therefore up to the English-speaking world to regulate physical markets but I see that they do not necessarily agree. Washington wants explicit rules while London wants implicit rules. Behind these
|The French Economy Minister Christine Lagarde intends to circulate this report very widely and even personally to key stakeholders around the world|
How likely is it that real action will be taken?
Well, two working groups have tackled the subject. Ours and a group of seven experts from the International Energy Forum (IEF). We have fairly similar analyses. We have examined the problem and specific actions can be taken at European and international level. It won’t all be in vain, believe me. This report won’t end up gathering dust in a drawer. The French Economy Minister Christine Lagarde gave it a very positive reception. She intends to circulate it very widely and even personally to key stakeholders around the world. It’s important to take a position now because we don’t know too well where initiatives on the regulation of financial markets are heading. It’s a fact that toughening up regulations is technically very complicated and powerful lobbies are opposed to it. France has a strong and tough position, especially on limiting speculation on Credit Default Swap derivatives (CDS). That’s similar to the position held by Gary Gensler, the president of CFTC.
What would be the impact and feasibility of using strategic stocks to counter or prevent speculative bubbles?
It sounds like a good idea but it isn’t. Strategic stocks do not have so much impact when there are big fluctuations in price. And what would happen if you were forced to get rid of stocks to such a point that you didn’t have any more stocks? Financial sharks are ready to push countries to the limit. So this
|EU is one of the major hubs for unprocessed oil and refined products but it suffers from a huge lack of transparency|
Who is Jean-Marie Chevalier?
Jean-Marie Chevalier is currently Professor of Economics at the University of Paris-Dauphine, Director of the Centre de Géopolitique de l’Energie et des Matières Premières (CGEMP). He is also a Senior Associate at Cambridge Energy Research Associates (IHS/CERA, Paris office), member of the Conseil d’Analyse Economique (CAE) of the French Prime Minister, member of the Cercle des Economistes and member of the Board of Directors of Nexans. He has published numerous books and articles on energy economics and industrial organization. The most recents are : Les grandes batailles de l’énergie (2005), Les marchés européens du gaz et de l’électricité : un défi pour l’Europe et pour la France (avec J. Percebois Rapport du CAE, 2008), Les 100 mots de l’énergie (2008), The New Energy Crisis: Climate, Economics and Geopolitics (2009). In October 2009, Christine Lagarde, French Minister of Economy, Industry and Employment asked Chevalier to chair a working group on oil price volatility. The report was presented in February 2010.
This interview accompanies our article France declares war on oil speculators.