Jan 17 2007
When there’re known reasons why oil price went up to above $70 per barrel not long ago, everyone understand. All the analysts, investors and even governments justify in their speeches that China consumed energy as if it was drinking mineral water, oil production was at its peak and will take months or years to pump more, the middle-east conflicts might affect the oil-producing countries nearby, terrorists attacked Saudi Arabia’s oil tanks and so on. With the same excuse, Malaysian Government increased the fuel-price causing high inflation and citizen jump onto streets holding demonstration.
But now, the oil-price has dropped to below $52 per barrel (yesterday, 16-Jan-2007, the oil price dropped to $51.21 per barrel). What are the reasons for this price “U-Turn”? Everyone offers their own reason. Analysts blamed it on the warm winter weather and now they pointed to comments by Ali Naimi, the Saudi oil minister, who said that an emergency meeting by the Organization of Petroleum Exporting Countries (OPEC) to cut their oil production isn’t necessary at this time.Without anymore bullets to use, BusinessWeek has offers a new creative and innovative reason (or excuse) – blame it on “Speculators”. “There’s been a huge jump in speculation in oil markets, and it’s exacerbating price volatility,” says Peter Fusaro, founder of the Energy Hedge Fund Center.
The justification was that there has been an explosion in the number of financial players in 
the energy markets. Fusaro reported that there are currently 530 energy hedge funds, up from just 180 in October, 2004. Of the total funds now, 177 are strictly energy commodity funds trading oil or oil futures and options, as opposed to the stocks of energy companies such as Exxon Mobil Corporation (NYSE: XOM, stock) and Chevron Corporation (NYSE: CVX, stock). Larger financial institutions such as Goldman Sachs Group (NYSE: GS, stock) and Morgan Stanley (NYSE: MS, stock) have also stepped up their participation in the energy markets recently.
the energy markets. Fusaro reported that there are currently 530 energy hedge funds, up from just 180 in October, 2004. Of the total funds now, 177 are strictly energy commodity funds trading oil or oil futures and options, as opposed to the stocks of energy companies such as Exxon Mobil Corporation (NYSE: XOM, stock) and Chevron Corporation (NYSE: CVX, stock). Larger financial institutions such as Goldman Sachs Group (NYSE: GS, stock) and Morgan Stanley (NYSE: MS, stock) have also stepped up their participation in the energy markets recently. Market data from the Commodity Futures Trading Commission shows that noncommercial 
traders were net short on oil prices as of Jan. 9. So in the short-term, it seems the energy price will keep heading south. However if the speculators play a major role in the current oil-price slide, can the same be said when the oil-price was heading north to as high as $78 at one time ago? If yes, then the actual consumption by nations’ industrial sector is not that significant after all. Maybe the world should ban oil-speculators who have cause hardship to low-income citizen – to borrow the statement from former Malaysia premier, Mahathir Mohamad who once blame the 1997 Asia Economy Crisis on speculators in general and George Soros in particular.
traders were net short on oil prices as of Jan. 9. So in the short-term, it seems the energy price will keep heading south. However if the speculators play a major role in the current oil-price slide, can the same be said when the oil-price was heading north to as high as $78 at one time ago? If yes, then the actual consumption by nations’ industrial sector is not that significant after all. Maybe the world should ban oil-speculators who have cause hardship to low-income citizen – to borrow the statement from former Malaysia premier, Mahathir Mohamad who once blame the 1997 Asia Economy Crisis on speculators in general and George Soros in particular.Do you think the Malaysian Government will reduce the fuel price now that it’s way below $60 per barrel? Your bet is the same as mine.
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January 17th, 2007 by financetwitter
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