A look at who’s betting on $100+ oil
Many analysts say the recent runup in prices hasn’t capped yet, leaving room for oil investment gains to intensify.
The skyrocketing price of oil is blindsiding consumers. Even analyst projections were ridiculously low for 2007. What’s going on? Why did crude oil prices rise by almost 60 percent last year and hit $100 on the first day of trading in 2008?
“One reason is that today’s oil market is precariously balanced between supply and demand. That’s why small wiggles in expectations about how much oil the world will need, and how much supply is on hand, cause such huge changes in price. Such gyrations explain why companies that are big oil users - such as airlines - owe their fortunes, increasingly, to how they manage their financial exposure to energy prices. Southwestern Airlines, for example, is not just efficient in moving customers, but it is particularly notable for a string of good bets to hedge jet-fuel costs,” says a recent Newsweek article.
Southwestern Airlines locked in yesterday’s prices on the hunch that today’s would be much, much higher. They were right. Although as consumers we would likely make the same bet, no one is taking our order to lock in today’s gasoline pump prices. Most of us already know that the cost of heating our homes and driving our cars is likely to continue to rise. Many analysts are predicting a difficult road ahead for consumers, with gasoline prices expected to top $4 a gallon as $100+ oil takes its full effect on the marketplace. Some individuals, however, are attempting to manage their financial exposure through oil and gas investments.
“It’s buying into an asset class that has very little correlation to [company stock prices],” CNN Money reported Citigroup vice chairman for global investment banking Andrew Safran saying at and energy conference on Tuesday. “They aren’t really speculators, they are making alternative investments.”
“And for those of you who think it’s only rich Wall Street types getting in on the commodities boom, Citibank’s Safran said investors of all stripes have gotten in on the action,” reported CNN Money. No one knows for sure where the price of oil will go in 2008, but “all stripes” are betting the direction is up.
Published Monday, February 18th, 2008 at 7:09 pm and filed under Industry News.