Are investors driving up the price of oil?
Recently, many analysts have pointed to speculation in the market as an explanation for record oil prices. Not so, reports CNN Money staff writer Steve Hargreaves. In a recent interview with industry experts from Citi Corp. and CERA, Hargreaves concludes that “the recent run up has more to do with strong demand, tight supply, and a desire to diversify instead of trading momentum.” Investing in oil as a hedge against inflation is a popular explanation for recent crude prices. Some say the commodities market is experiencing a temporary bubble and that prices are overinflated by $30 - $40 per barrel. Referencing the tech bubble of the 1990’s, many have concluded that a “bubble burst” will result in a strong shift away from commodities investments. Citigroup’s vice chairman for global investment banking, Andrew Safran, disagrees. “This is not a flash in the pan,” he said. “Commodities as an asset class are generally attractive to investors. It’s here to stay.” “And for those 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,” said Hargreaves. Analysts that do not support the price bubble theory generally attribute current prices to supply, demand, and concerns over energy security. According to the Associated Press, estimated world production rates are currently at around 85 million barrels per day (BPD). U.S. Department of Energy (DOE) figures indicate that consumption is approximately 85-86 million BPD. Although exact numbers are impossible to obtain, it seems clear that extra capacity is extremely tight for the moment, leaving the tensions surrounding oil prices unlikely to be resolved any time soon.Published Tuesday, March 11th, 2008 at 1:16 pm and filed under Industry News.