In an oral evidence session to mark his appointment with the Treasury Select Committee yesterday, Professor Charles Bean was quizzed by MPs on whether a correction in oil prices could spark a future credit crunch.
Treasury Select Committee member and Labour MP for Carmarthen West & South Pembrokeshire Nick Ainger said: “Some have predicted that if the market was properly regulated, oil prices could fall 50 per cent to $70 a barrel in 30 days. Would you be concerned about the 71 per cent of futures which are owned by investment banks, pension funds and hedge funds, that it could actually create another global credit crunch because of the damage that they would do to themselves because of their over-exposure?”
Professor Charles Bean said: “I actually think there is good reason to believe in the long term for prices to settle lower than they are now – but it may take us a while to get there as there may be a period where they continue to rise.”
He added: “For some institutions it could generate a not insignificant loss and as with all asset price corrections it may have macro economic implications.”