The New Year may be only days old, but Bloomberg reports that the “fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of the year.”

Options to buy oil for $200 on the New York Mercantile Exchange have apparently risen 10-fold in the past two months, with some traders expecting oil to rise for a seventh straight year.

Other analysts agree. “One hundred dollars a barrel is actually 14.9 cents a cup, so we’re still talking about oil being remarkably cheap,” argues Matthew R. Simmons, chairman of Simmons & Co. International. Inventories “are tight as a drum and I don’t see how we get out of this box,” he said in a Bloomberg television interview last week. “Demand clearly isn’t starting to slow down.”

“We haven’t got to $100 on just a whim,” said Paul Horsnell, head of commodities research at Barclays Capital in London. “This is at heart also about longer-term concerns that supply capacity investment needs higher prices to keep up with demand growth.”

Taking bets anyone?

One Comment

  • Why aren’t out legislators following the recommendations of their own subcommittees?
    Where are the media watchdogs?

    U.S. Senate Permanent Subcommittee
    on Investigations, Gas Prices: How Are They Really Set?

    ‘‘There has been no shortage and inventories of crude oil and
    products have continued to rise. The increase in prices has not been
    driven by supply and demand.’’
    —Lord Browne, Group Chief Executive of BP

    ‘‘The oil prices have been moving steadily up for the last 2
    years. And I think I have been very clear in saying that I don’t
    think that the fundamentals of supply and demand—at least as we
    have traditionally looked at it—have supported the price structure
    that’s there.’’
    —Lee Raymond, Chairman and CEO, ExxonMobil

    Based upon its investigation into the role of market speculation
    in rising oil and gas prices, the Subcommittee staff makes the following
    findings and recommendations.
    A. Findings
    1. High crude oil prices are a major reason for the record or near record
    highs of the prices of a variety of petroleum products, including
    gasoline, heating oil, diesel fuel, and jet fuel.

    2. The traditional forces of supply and demand cannot fully account
    for these increases. While global demand for oil has been increasing, global oil supplies
    have increased by an even greater amount. Global inventories
    have increased as well. In 2006, U.S. oil inventories were at
    an 10-year high, and OECD oil inventories were at a 20-year high. Accordingly,
    factors other than basic supply and demand must be examined.

    3. Rise in Speculation. Over the past few years speculators have expended tens of billions of dollars in U.S. energy commodity markets. Speculation has contributed
    to rising U.S. energy prices, but gaps in available market data currently impede analysis of the specific amount of speculation, the commodity trades involved, the markets affected, and the extent of price impacts.

    4. Price-Inventory Relationship Altered. With respect to
    crude oil, the influx of speculative dollars appears to have altered
    the historical relationship between price and inventory, leading the
    current oil market to be characterized by both large inventories
    and high prices.

    5. Large Trader Reports Essential. CFTC access to daily reports
    of large trades of energy commodities is essential to its ability
    to detect and deter price manipulation. The CFTC’s ability to detect
    and deter energy price manipulation is suffering from critical
    information gaps, because traders on OTC electronic exchanges and
    the London ICE Futures are currently exempt from CFTC reporting
    requirements. Large trader reporting is also essential to analyze
    the effect of speculation on energy prices.

    6. ICE Impact on Energy Prices. ICE’s filings with the Securities
    and Exchange Commission and other evidence indicate that its
    over-the-counter electronic exchange performs a price discovery
    function—and thereby affects U.S. energy prices—in the cash market
    for the energy commodities traded on that exchange.

    B. Recommendations
    1. Eliminate Enron Loophole. Congress should eliminate the
    Enron loophole that currently limits CFTC oversight of key U.S.
    energy commodity markets and put the CFTC back on the beat policing
    these markets.

    2. Require Large Trader Reports. Congress should enact legislation
    to provide that persons trading energy futures ‘‘look-alike’’
    contracts on over-the-counter electronic exchanges are subject to
    the CFTC’s large trader reporting requirements.

    3. Monitor U.S. Energy Trades on Foreign Exchanges. Congress
    should enact legislation to ensure that U.S. persons trading
    U.S. energy commodities on foreign exchanges are subject to the
    CFTC’s large trader reporting requirements.

    4. Increase U.S.-U.K. Cooperation. The CFTC should work
    with the United Kingdom Financial Services Authority to ensure it
    has information about all large trades in U.S. energy commodities
    on the ICE Futures exchange in London.

    5. Make ICE Determination. The CFTC should immediately
    conduct the hearing required by its regulations to examine the
    price discovery function of the ICE OTC electronic exchange and
    the need for ICE to publish daily trading data as required by the
    Commodity Exchange Act.

    6. Eliminate the incentives for speculators to drive up the price of oil by limiting the amount of return on their dollar.
    Raise taxes on oil speculation to a reasonable percentage based on true growth rather than unrestricted greed.

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