Analyst examines the “financialization of oil”
Leo Drollas, a London-based analyst for the Centre for Global Studies, told the Gulf Times recently that he sees a major shift in the oil investment market. According to Drollas, the “‘financialization of oil,’ or the use of oil as an investment product for speculators and even pension funds, was a key theme of 2007 that was set to continue in 2008.” “It started late last year. We’re now seeing different types of investors,” he said. “Before it was primarily hedge funds, now we’re seeing pension funds, which are very conservative investors, taking long-term positions in oil as part of a larger portfolio strategy.” One can only theorize about why conservative investment vehicles are now moving into the commodities sector, but it seems likely that growing confidence in long-term crude price increases is the driving factor. If the first day of trading in 2008 is any indicator, triple-digit prices could become a consistent part of the 2008 landscape. Despite the lack of a major crisis, concerns over low OECD industry stocks and geopolitical troubles were enough to drive oil above $100 for the first time in history. Near-term forecasts vary widely: Investment bank Goldman Sachs recently raised its 2008 average benchmark forecast to $95, while Bloomberg reports that options to buy oil for $200 have increased 10-fold in the last two months. While it’s uncertain where exactly the price ceiling is, it appears that many private and institutional investors think we’ve got some room before we reach it.Published Sunday, December 30th, 2007 at 8:41 am and filed under Industry News.