Business | Oil & Gas
Deutsche Bank report says market needs more speculators to help stabilise prices
The crude-oil market needs more speculators to help stabilize prices six months after the traders were blamed for pushing the commodity up to a record $147.27 a barrel, Deutsche Bank said in a report.
- Bloomberg
- Published: 23:19 January 21, 2009
Dallas: The crude-oil market needs more speculators to help stabilize prices six months after the traders were blamed for pushing the commodity up to a record $147.27 a barrel, Deutsche Bank said in a report.
A lack of liquidity is distorting prices, particularly for near-term delivery, amid an oversupply of oil at Cushing, Oklahoma, said analysts led by Paul Sankey in New York in the Deutsche Bank report. This is sending the "wrong" price signals to refiners and producers.
"We clearly have a fundamentally imbalanced market, with far too much crude, that needs to be resolved," the analysts said. "We need more market activity to correct these issues, but for technical, political and financial reasons, the liquidity of the market has dried up and the long-term price of oil is partly distorted."
The market needs speculators who deal in physical crude oil, actually making and taking delivery of the commodity, the analysts said. Market speculators last year were "paper" speculators, trading oil as a financial instrument and never taking possession of the crude.
Also staying out of the market are mid-cap integrated oil companies who lost money on hedges in place when the market went up and refiners "unwilling" to tie up capital in holding physical oil during the current credit crisis, the report said.
Organisation of Petroleum Exporting Countries (Opec) producers such as Saudi Arabia and major oil companies such as Exxon Mobil don't usually do forward sales on exchanges, the analysts said.
Supplies at Cushing, the delivery point for New York futures, reached the highest in at least four years in the week ended January 9, as inventories climbed 2.5 per cent to 33 million barrels, according to the Energy Department. It began keeping records for the location in 2004.
Oil futures for delivery in March cost about $8.14 a barrel more than for delivery in February last week, allowing traders to profit by buying and holding oil, if they have the ability to store it. The differential was $2.10 a barrel yesterday, as February oil expired.
Oil for delivery a year from now cost $16.97 a barrel, or 44 per cent, more than for February 2009. "We are now in an over-supplied bust cycle, and we need lower prices either to encourage demand or decrease supply," the analysts said.
Production cuts by Opec haven't helped enough because lower oil prices haven't spurred an increase in demand.
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