Dollars and Jens
Tuesday, November 27, 2007
oil speculation
Help me follow this:
"High oil prices are not rationing demand," Addison Armstrong, director of market research at the brokerage Tradition Energy Futures, said, adding that speculative money might be tacking on just $5 or $10 to the price of a barrel. "The fundamentals are much tighter than they were a year ago."Follow that? Inventories have been declining; the amount of oil being produced has been less, with market prices where they've been, than the amount of oil being consumed. The net amount of oil bought off the market for reasons other than immediate use has been negative. The reason, as Gheit points out, is that people who own it have been — he doesn't use this word, for some reason — speculating that oil prices will drop.
EIA said other factors contributing to a doubling in oil prices over the last year include moderate growth in new supplies from non-OPEC countries, the inability to immediately produce much more oil in OPEC countries, a lack of refining capacity and ongoing geopolitical threats.
But longtime Oppenheimer oil analyst Fadel Gheit doesn't buy it.
Gheit said inventories are declining because high oil prices give people an incentive to sell crude now and wait until later to restock supplies, when hopefully oil is cheaper.
This guy, though, thinks speculators have been driving up prices, and fingers my employer:
When Goldman last month told its clients to sell oil when it approached the mid-90's, crude lost over $3 in one day.Actually, he didn't call attention to that bit; it kind of gets tucked away in the story.
Successful speculation causes spikes to come sooner and to be less severe. Unsuccessful speculation tends to exit the market. If speculators are, in fact, stockpiling oil, causing the price to rise, I'm willing to be glad they're taking precautionary measures in case it does.
