Transcripts

What's Pumping The Oil Price Gusher?

SUSIE GHARIB: The record run in energy prices continued today, with crude oil now closing in on $118. In New York trading, the May contract for light sweet crude gained $0.79 to close at $117.48 a barrel. Supply worries intensified across the globe today, as rebel attacks in Nigeria cut production and a potential strike at a Scottish refinery threatened oil output in the North Sea. Meanwhile, OPEC officials said the market had plenty of oil and the cartel would not increase production. Suzanne Pratt takes a closer look at what's been driving the rally in energy prices.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Crude oil prices are up more than 20 percent this year and 500 percent in the last decade. While most analysts would concur the recent surge has been remarkable, there's less agreement on what's behind it. Many oil experts will tell you speculation is largely driving the rise in prices, but what is it that's drawing investors to energy and other commodities? Oil trader Anthony Grisanti says speculators now include hedge funds, pension funds and ETFs and they're buying oil contracts because the alternatives have been disappointing.

ANTHONY GRISANTI, OIL TRADER, GRZ ENERGY: Over the last six to eight months, they haven't made any money in the equities markets, the stock market, the bond market, real estate trusts, things like that. So what's happening is they realize that this is another investment vehicle for them and they've been pouring money into the commodities.

PRATT: Others say those same investors are currently interested in oil because of the weak U.S. dollar. Lehman Brothers economist Ed Morse says oil is working as a hedge against further dollar depreciation because it's priced in dollars.

EDWARD MORSE, CHIEF OIL ECONOMIST, LEHMAN BROTHERS: While over a 20 or 30 year period, there is no good correlation between oil prices and the value of the dollar, between last summer and today, there's an almost perfect negative correlation.

PRATT: Still others blame the sky-high energy prices on the fundamentally tight oil market, one where global demand could outpace supply. Experts say supply isn't growing and any supply shock in an oil producing nation from a geopolitical event or from Mother Nature in the form of a hurricane and prices will rally higher. The demand picture is a bit fuzzier. While some evidence suggests China and India's demand for oil is expanding, together they only consume about half of what the U.S. does. Morningstar analyst Justin Perucki says much of this year's global demand story hinges on the U.S. economy.

JUSTIN PERUCKI, OIL ANALYST, MORNINGSTAR: The U.S. consumes about 25 percent of the world's oil and so what happened to demand growth here in the United States, especially in a situation, are we in a recession or are we not, is obviously a key driver to where oil prices head from here.

PRATT: Many experts believe oil prices will easily head higher before they head significantly lower. They say momentum in the market is simply too powerful to the upside. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.