What’s behind the 'crazy' oil price spike?

May 30, 2008

Share with
friends:

Comments (0) Print this article

Normally it takes a war to lift oil prices $10 a barrel in a week, says Javier Blas in the FT. “Not this week.” Spot prices soared to $135 a barrel, while futures for delivery in 2016 reached $145 a barrel. Asked to explain the leap, Abdullah el-Badri of Opec summed up the feelings of many: “The market is really crazy.”

What’s behind this recent surge, both in oil and other commodities? Hot money, according to popular opinion. “Retail investors have joined a raft of hedge funds and pension funds in making millions of pounds by cashing in on the oil crisis,” says Louise Armistead in The Sunday Telegraph.

Hedge fund manager Michael Masters agrees. “Are institutional investors contributing to food and energy price inflation? My unequivocal answer is yes,” he told the US Congress, pointing to the amount of investment money chasing the commodities market. “At the end of 2003 there was $13 billion in commodity index funds. By March this year, that amount had grown 20 times, to $260 billion.”

Not everyone is convinced. “If China’s per capita car ownership rises to only a tenth of American levels over the next decade… the impact on world oil demand will be shattering,” says Liam Halligan in The Sunday Telegraph; that outlook justifies $100-plus oil.

But David Fuller of Fullermoney.com, who is still a firm believer in a long-term commodities bull market, thinks public conviction that speculation is bumping up prices means that near-term risks are high. “If the futures markets are not functioning… then government regulation becomes extremely likely.”

Comments (0)

Share with
friends:

Related articles

Leave a comment

This will be the name displayed with your comment.

This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.

Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.

captcha To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.

By leaving a comment you accept our terms and conditions.


FREE - MoneyWeek's daily investment emailJohn Stepek

Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.

>