Lured by 11-month highs, speculators drive oil prices higher
Monday, 23 July 2007
NEW YORK, July 22 (AFP): Under rising demand, geopolitical tensions and infrastructure problems, oil is commanding high prices not seen for nearly a year, luring speculators who are pushing prices ever skyward.
In just the past month, crude prices have climbed about five dollars in New York and seven dollars in London.
On Friday, oil prices stabilized as traders paused for profit-taking in the heated rally.
New York's main oil futures contract, light sweet crude for delivery in August, shed 35 cents to close at 75.57 dollars per barrel.
In London, Brent North Sea crude for September delivery closed virtually flat, down three cents at 77.64 dollars per barrel. On Wednesday Brent shot up more than a dollar after the US government reported gasoline inventories fell sharply, instead of climbing as the market had expected.
Global oil prices are now flirting with their all-time highs of the summer of 2006.
Brent oil price is just a dollars short of its record high of 78.64 dollars, struck on August 7, 2006, after a pipeline spill forced British firm BP to close production from Prudhoe Bay, the biggest oil field in the United States.
But New York crude has some ground to go before reaching its historic peak of 78.40 dollars per barrel, set on July 13, 2006, when violence erupted between Israel and Lebanon.
"The thing is that, even with oil prices at this level, demand for oil continues to increase and that's the key," said Phil Flynn, an analyst at Alaron Trading.
The International Energy Agency, which defends consumer countries' interests, predicts that global demand, which had slowed in the high-ticket year of 2006, would continue to rebound this year and the next, despite elevated prices, while surplus production capacities would dwindle.
To that add "a context of widespread worries," said Antoine Halff, an analyst at Fimat, pointing to tight gasoline supplies in the United States during the peak summer driving season and persistent geopolitical tensions, such as instability in African producer Nigeria and the international dispute over Iran's nuclear program.
While there is no lack of factors to push up the price ber barrel, the renewed interest of speculators in the oil market is accelerating the trend.
According to the Commodity Futures Trading Commission (CFTC), the US government watchdog agency, long positions on the New York Mercantile Exchange (NYMEX) set a new record in the July 10 week, at a time when prices were climbing.
That heightened interest in long-term positions, in which the buyer or seller of a commodity agrees to delivery at a relatively distant date in the future, is due to speculators, analysts said.
By buying oil futures contracts long, these investors hope to sell them later at a higher price.
"Right now you see huge, net long positions in the marketplace and these are non-commercials players, so that means they don't actually use the oil," said Jason Schenker, an analyst at Wachovia.
While speculation is a byword in markets, the CFTC nevertheless considers a purely speculative player as one who "does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes."
Fimat's Halff underscored a massive influx of new investments in the oil market.
"In recent years, there was a spectacular increase in investments by new actors in the oil market: pension funds, investment funds, hedge funds" and others, he said.
"They always have an eye on this market, but they enter or leave it according to the short-term opportunities they spy," he added.
James Williams, an analyst at WTRG Energy, said "there is clearly a kind of 15-dollar risk premium in prices.
In just the past month, crude prices have climbed about five dollars in New York and seven dollars in London.
On Friday, oil prices stabilized as traders paused for profit-taking in the heated rally.
New York's main oil futures contract, light sweet crude for delivery in August, shed 35 cents to close at 75.57 dollars per barrel.
In London, Brent North Sea crude for September delivery closed virtually flat, down three cents at 77.64 dollars per barrel. On Wednesday Brent shot up more than a dollar after the US government reported gasoline inventories fell sharply, instead of climbing as the market had expected.
Global oil prices are now flirting with their all-time highs of the summer of 2006.
Brent oil price is just a dollars short of its record high of 78.64 dollars, struck on August 7, 2006, after a pipeline spill forced British firm BP to close production from Prudhoe Bay, the biggest oil field in the United States.
But New York crude has some ground to go before reaching its historic peak of 78.40 dollars per barrel, set on July 13, 2006, when violence erupted between Israel and Lebanon.
"The thing is that, even with oil prices at this level, demand for oil continues to increase and that's the key," said Phil Flynn, an analyst at Alaron Trading.
The International Energy Agency, which defends consumer countries' interests, predicts that global demand, which had slowed in the high-ticket year of 2006, would continue to rebound this year and the next, despite elevated prices, while surplus production capacities would dwindle.
To that add "a context of widespread worries," said Antoine Halff, an analyst at Fimat, pointing to tight gasoline supplies in the United States during the peak summer driving season and persistent geopolitical tensions, such as instability in African producer Nigeria and the international dispute over Iran's nuclear program.
While there is no lack of factors to push up the price ber barrel, the renewed interest of speculators in the oil market is accelerating the trend.
According to the Commodity Futures Trading Commission (CFTC), the US government watchdog agency, long positions on the New York Mercantile Exchange (NYMEX) set a new record in the July 10 week, at a time when prices were climbing.
That heightened interest in long-term positions, in which the buyer or seller of a commodity agrees to delivery at a relatively distant date in the future, is due to speculators, analysts said.
By buying oil futures contracts long, these investors hope to sell them later at a higher price.
"Right now you see huge, net long positions in the marketplace and these are non-commercials players, so that means they don't actually use the oil," said Jason Schenker, an analyst at Wachovia.
While speculation is a byword in markets, the CFTC nevertheless considers a purely speculative player as one who "does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes."
Fimat's Halff underscored a massive influx of new investments in the oil market.
"In recent years, there was a spectacular increase in investments by new actors in the oil market: pension funds, investment funds, hedge funds" and others, he said.
"They always have an eye on this market, but they enter or leave it according to the short-term opportunities they spy," he added.
James Williams, an analyst at WTRG Energy, said "there is clearly a kind of 15-dollar risk premium in prices.