AN interesting thing is happening in the oil markets that has not received enough media attention. Given the prolonged closure of the Strait of Hormuz and the severe supply-side crisis that has hit global oil markets, there should by now have been a spiralling rise in the price of oil. But instead, we see it rise slightly above $100 and then drop below. Sometimes this follows the headlines. But overall, a mystery is developing around why oil prices are not seeing massive rises these days, even as more and more countries announce releases from their strategic petroleum reserves (SPR), which is a sure sign that physical shortages of oil are landing around the world.

One answer doing the rounds among oil analysts is the idea of ‘paper oil’. The argument is that the US Treasury is actively manipulating the price of oil by selling massive quantities in the futures market. This helps keep the price of oil down in the present. A Reuters story published on March 5, the first week of the war, kicked off rumours that this might be happening. “The US Treasury Department is expected to announce measures as soon as Thursday aimed at combating rising energy prices, including potential action involving the oil futures market”, read the opening sentence of the story, quoting a senior White House official. Brent had jumped to $85 at the time, and the IRGC had announced the closure of the Strait of Hormuz just three days earlier. To comprehend how this works, it is necessary to........

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