Business | Oil & Gas
Hot money fuel rally in prices of crude futures
The New York WTI crude nearby futures contract closed the week at $125.96 a barrel, up $9.64 in a week of relatively little news, and up $24.00 in just six weeks, an extraordinary price increase acceleration.
- By Dalton H. Garis, Special to Gulf News
- Published: 23:37 May 10, 2008
Abu Dhabi: The New York WTI crude nearby futures contract closed the week at $125.96 a barrel, up $9.64 in a week of relatively little news, and up $24.00 in just six weeks, an extraordinary price increase acceleration.
New money, "hot money," is entering crude markets from equities and credit markets on the buying side bidding up prices for current and future deliveries.
Demand strengthening was the story last week, the idea that current and expected production will not provide sufficient quantities of daily surplus to banish fear and greed from traders' minds.
Last week's Commitment of Traders report from the US Commodity Futures Trading Commission show-ed more short positions added and long positions reduced. But those shorts had to quickly cover and reverse their positions in the face of relentless price increases.
KPMG's annual survey of 372 oil industry executives showed 55 per cent saying crude oil will drop below $100 by the end of the year. Twenty-one per cent think that the price will close between $101 and $110; 15 per cent think between $111 and $120; and 9 per cent believe it will close at above $120.
Markets are clearly looking over the time horizon and what they see justifies in their minds much higher prices for even today's oil, as future production replacements will only be possible at far greater cost.
Putting this thinking into dollars and cents led to big gains on even the distant futures contracts, those due for delivery in three to five years. WTI futures for June 2010 are $120.10, and for June 2015 $119.58, indicating that today the money people believe that is what it will cost to get the oil in seven years.
Last week DME Oman crude set more records. Spot crude settled Thursday at $116.36 a barrel which became Oman's official selling price. But after-hours trading kicked the price up by $1.69 to $118.05. For the week DME Oman gained $11.30, the increase surpasses New York's price gain by $1.66. Natural gas markets were up $1.02 for the week, at $12.07 per million btu.
- The writer is associate professor of Economics and Petroleum Market Research at The Petroleum Institute, Abu Dhabi.
Business Editor's choice
-
Do unemployment figures flatter to deceive?
Jobseekers and recruiters give out mixed signals ranging from optimism to downright despair even as official data show recovery
-
Banks can increase their share
Longer opening hours, more locations outside cities and lower charges can help
-
Geepas idea blossomed in Dubai
The journey led from a small shop in Bahrain to a $1.27b company in the UAE
