Saudi Arabia’s oil officials will doubtlessly feel exonerated—if not downright pleased—by a report last week blaming speculators for the steep rise in global oil prices over the past year or two.
KBC Market Services last week said that rather than market fundamentals, investors—who seem to brush aside news regarding the physical oil balance—are responsible for today’s high oil prices.
“The greed and mismanagement that led to the credit crisis in the US and caused economic weakness has spilled over to the crude markets, with high oil prices imposing a further burden on the global economy and leading to major concerns over inflation,” KBC said in its Monthly Oil Market Outlook.
KBC also took issue with some high oil price predictions issued by large investment banks, saying that they helped to increase prices by issuing bullish possible future price ranges that seem to be based on little more than extrapolations and herd mentality.
Deja vu
The news is not altogether new.
Flash back to last November when Saudi Oil Minister Ali al-Naimi said that the price of crude should be closer to $60/bbl than $100/bbl, pointing specifically to the lack of any connection between underlying market fundamentals and the price of crude oil.
“The price today really has no relation whatsoever with the fundamentals,” said al-Naimi, adding that “the fundamentals do not support the current price.”
At the time, Toronto’s Globe and Mail newspaper did not seem to take to al-Naimi’s view of things, mocking his “expansive thoughts” on the volatile oil market and the “pessimists,” “gurus,” and “experts” preaching Peak Oil that are “agitating the speculators.”
But Newsweek magazine, writing at the same time, took a different tack: “Al-Naimi’s view has lately been echoed by oil-company executives and Wall Street analysts,” the magazine said. “Indeed, hedge funds, investment banks, program traders, and ordinary investors have been piling billions into oil futures, gas options, and complicated energy derivatives.”
Money players
Investment banks like Morgan Stanley have made up to a quarter of their recent profits from energy trades, Newsweek said, citing hedge-fund tracker Peter Fusaro.
“While the oil analysts polled by Newsweek last week differ on the extent of the impact, they all agreed that the money players have helped drive up the price,” it said.
“The market is no longer about physical supply and demand for oil,” Ben Dell, energy analyst at Sanford Bernstein in New York, told the magazine. “The Saudis could be pumping another million barrels and it wouldn’t change a thing.”
At the time, Dell estimated that “the oil-price spike could hit $140 before coming down, in large part thanks to speculators.”
Back in Riyadh, Al-Naimi must certainly be trying very hard to resist saying, “I told you so.”
