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Falling Oil Prices: Again, Blame Speculators
Steve LeVine, Business Week
Hedge funds and other speculators have had a hand in oil’s price decline, just as they did in its rise. But don’t expect congressional hearings now
When oil prices soared to a peak of $147 a barrel last summer, oil speculators became the whipping boy from Main Street to Congress. Critics demanded that regulators rein in hedge funds, pension funds, college endowments, and other investors that had piled into oil futures in a quest for easy profits. But the protests have died away now that prices have plunged by $100. “You don’t hold Senate hearings when oil prices are low,” says Joel Fingerman, managing partner of Chicago-based Fundamental Analytics, a commodities analysis firm. “There’s no political mileage to be gained.”
But just as the stampede of nontraditional investors into the oil futures market helped to push prices up, their exit has had a hand in bringing them down. Many hedge funds and institutional investors have unwound losing positions or have been forced to sell to meet margin calls elsewhere in their portfolio, analysts say.
… The exodus began last spring, when crude prices soared past $110 a barrel. Unlike oil traders who can be long or short, or sometimes both, in a single day, the newcomers to the market had taken uniformly long positions—that is, they were betting oil prices would continue to go up. When the financial crisis began to worsen, many of these investors stopped rolling over their positions when contracts expired, thus removing a crucial underpinning to higher prices. Nymex data show that among noncommercial traders, the number of long positions still exceeds the shorts. But analysts don’t know if this is intentional or whether some are simply having trouble unwinding their positions.
Speculators were not alone in causing the price bubble—commercial traders were behind the last leg in oil’s rise, from about $110 a barrel to its July 11 peak of $147 a barrel, according to Fingerman. But could speculators now be now be causing prices to overshoot on the downside?
Some seasoned oil hands think at least part of the problem is financial liquidity—the sell-off has gone so far that there isn’t enough bank lending to finance trading.
(8 January 2009)
Oil Tumbles 12 Percent as U.S. Supplies Rise More Than Forecast
Mark Shenk, Bloomberg
Oil futures tumbled 12 percent, the most in more than seven years, after a U.S. government report showed bigger-than-expected increases in supplies of crude oil, gasoline and distillate fuel as consumption dropped.
Inventories of crude oil rose 6.68 million barrels to 325.4 million barrels last week, the highest since May, the Energy Department said today in a weekly report. Supplies were forecast to increase by 800,000 barrels, according to the median of forecasts by 14 analysts in a Bloomberg News survey.
“We have the making of a huge glut here,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “Supplies are more than adequate and should continue to rise because demand is so poor.”
(7 January 2009)
Era of Cheap Energy ‘Will Never Return’
Andrew Grice, Independent (UK)
The era of cheap energy is over and will never return as Britain pays the price of turning into a low-carbon economy, the former chairman of the Environment Agency has warned. Sir John Harman accuses politicians of failing to be honest with people about the costs of developing and delivering new forms of clean energy.
And he calls for measures to combat fuel poverty, through price controls, subsidies or higher state benefits to prevent the creation of a new class of low-carbon poor.
(8 January 2009)
Also at Common Dreams.
Norway Sees Oil Production Falling 9.7% This Year
Marianne Stigset, Bloomberg
Oil production on the Norwegian continental shelf may fall 9.7 percent this year, declining for a ninth year, the country’s Petroleum Directorate said.
… “Between 2009 and 2013 we expect significantly reduced oil production,” Bente Nyland, head of the directorate, said at a press conference in Stavanger. “We expect cost growth to level off or decline next year.”
Norway, the world’s fifth-largest oil exporter and third- biggest natural-gas supplier, pumped its first barrel of oil more than three decades ago in the North Sea. The country is boosting production of natural gas and opening more of its unexplored northern waters to drilling to counter a decline in oil output at maturing fields.
(8 January 2009)