What's Fueling Rising Oil Prices ?
Wednesday, June 03, 2009SUSIE GHARIB: President Obama is in Saudi Arabia tonight meeting with King Abdullah. One subject they'll be talking about: price volatility in the oil markets. Meanwhile crude prices slipped today after the U.S. government reported an unexpected jump in supplies. In New York trading, July crude futures fell $2.43 to close at $66.12 a barrel. But prices are still up sharply in the last month. Suzanne Pratt takes a look at what's fueling the spike.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Remember those annoying speculators that some people tried to blame last summer when the price of crude shot up to nearly $150 a barrel? By some accounts, they're back. Trader Tim Jennings says there are more speculators in the market today than there were six months ago when oil prices were much lower.
TIMOTHY JENNINGS, OIL TRADER, VANTAGE TRADING: I think so. I think as the market's improved I think people that have cash on the sidelines are putting that money to work and are investing in the markets, the crude oil markets now.
PRATT: But many oil experts also say speculator is a misleading and negative label. What we're really talking about is people who have no intention of taking delivery of the oil, in other words, investors. Investors or speculators, whatever you call them, oil analyst Jonathan Kleisner says they never really left.
JONATHAN KLEISNER, MANAGING DIRECTOR, REX CAPITAL GROUP: It is notable that no one talked about speculators when crude oil was $30 a barrel earlier this year. There was just as many speculators involved then as now.
PRATT: Kleisner also says speculators play a valuable role in the marketplace, helping to keep volatility to a minimum.
KLEISNER: They really do add a market amount of efficiency so the gap between the natural buyers and natural sellers is often narrowed by the speculators.
PRATT: Others say the reason we're fretting about speculators now is the need to blame someone for this year's 50 percent jump in crude prices. Many believe the supply-demand fundamentals simply do not support the current price of oil. Nevertheless, most experts believe demand will accelerate this fall, pushing oil prices even higher.
JENNINGS: I'm not sure I would say $147 and I'm not sure I would say $100 but it seems to me technically you could look at $75 as kind of a near-term target.
PRATT: Others predict prices will continue to climb because investors or speculators will buy oil as a hedge against inflation and because oil is now widely accepted as a way to diversify a portfolio. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
