Log In

Email / Alias:
Password:
Remember Me
Forgot your password?

Blame Go Round

02 Oct 2008 12:20TraderF
The [NYMEX:CL.C] oil market has turned into a blame go round. Firstly the emerging economies were increasing their demand.  We then found out while the demand had gone up it was nothing like the amounts that some would have us believe.  As prices have gone up the OECD countries have been reducing their demand while emerging economies have been increasing their demand.  This trend has been exaggerated by subsidised fuel failing to send price signals to emerging economies end consumers.

Next producers were at fault for not pumping enough crude.  From their point of view high oil prices are a good thing provided they do not trigger a rush to alternatives. It is not in the producer’s interest for prices to rise too quickly so they have tried to pump just enough increased production to keep prices steady to slightly rising. 

Next the refiners are to blame for failing to build enough refining capacity in the 1990’s.  They created a bottle neck in supply that trigger the current uptrend.  This is especially true of the capacity to refine the heavier crudes.  From a financial point of view this has only helped the oil giants financially.

The latest group being held to blame are the big hedge funds for excessive speculation in the market.  It has been said that they have been using their financial muscle to drive the price of all up with the huge positions they are holding in the NYMEX futures market.

So who is to blame?  The answer is of course all of the above.  Each of these participants has contributed in their own way to the oil price settling at $136.00 per barrel today.

In the end however there are two major factors that will determine the future price of oil.  These are the U.S dollar [FOREX:EURUSD] and the oil consumer.  While the U.S dollar continues to sink the price of oil will be well supported.  This is because producers are expected to accept ever weaker dollars for their oil. 

Lastly the most powerful group who will win in the end is the consumer.  They will not continue to use oil at any price.  What was an essential journey at $60 per barrel may not look so essential at $130 per barrel.  While supply affects price, so price also affects demand.

There are currently no comments on this topic.
Be the first person to Add a Comment...
Add a Comment Add a Comment
You must be a registered user to post a comment: REGISTER NOW
If you are already registered, please LOGIN NOW