Speculators bet on $200 a barrel oil

Guardian ^ | 1/7/2008 | Andrew Clark

[Red in Blue PA]

Think oil at $100 a barrel seems expensive? Speculators are already betting that the price will double to $200 by the end of the year.

On the floor of the New York Mercantile Exchange (Nymex), the number of options purchased to buy oil at $200 has leapt 10-fold in the past two months to 5,533 contracts.

The increase in demand is a record for any similar period according to Bloomberg News. The price for the contracts has jumped 36% since early December.

Options contracts are a simple way for investors to speculate on rising prices. Buyers do not have to keep them until the price hits $200 — they can simply sell them on as their value rises.

The number of $200 contracts is still extremely small in the context of the overall options market — and Kevin Norrish, director of commodity research at Barclays Capital, suggested that it would take a "massive supply shock", such as another war in the Middle East, for the price to double this year.

[Red Badger]

...it would take a "massive supply shock", such as another war in the Middle East, for the price to double this year.

Or another terrorist attack........

[Slapshot68]

But...but...Nancy Pelosi said when she was elected that she’d lower oil prices!

[The South Texan]

Speculators (IE tied to Liberal Democrats) are behind this.

[Minn]

Nothing to see here. Every security and commodity has deep in and out of the money options that a few people play with, but are basically untraded. The people buying these calls have no more knowledge of the future than a Cubs fan in Vegas that takes the 100 to one odds on his team in February. The people selling the calls are just making easy money like the sports book; providing a market for those who enjoy betting on long-shots. Means nothing at all to oil markets.

[mysterio]

$200 a barrel oil means recession/depression.

[thinking]

I agree...$200 would stop the economy dead in its tracks...

[The Great RJ]

Basic economics will make $200 per barrel oil unlikely. As oil prices, and thus gasoline and other oil based products, get higher the market will react by demanding less or seeking cheaper substitutes. If gasoline moved toward $4+ per gallon, we would see many people dumping their Hummers, motor homes and other gas guzzlers. Sales of both new and used higher mileage cars would increase (as would their price) and Sunday drives, driving vacations and other non essential driving would be curtailed. At $100+ per barrel prices many oil alternatives become financially viable e.g, vegetable oils as a diesel substitute, turning coal and even organic wastes into oil etc. This could push the price of Mideast crude down not up.

[jas3]

Or another terrorist attack........

Didn't oil prices drop a lot after 9/11 ?

Answer: YES.

jas3

[2banana]

Sounds like the dot.com bubble...

It will only go higher because we think so. No fundamentals...

Bubble OIL...

[Red Badger]

That was then. Now, it seems, that any “disturbance in the Force” causes a price rise for no apparent reason.........

[AlaskaErik]

If gasoline moved toward $4+ per gallon, we would see many people dumping their Hummers, motor homes and other gas guzzlers.

And who is going to buy them? If there is a glut of these vehicles on the market, their value will plummet. And most people will be upside down, if they aren't already. Even if they allow them to be repoed, they'll have problems getting financing for a smaller car.

[jas3]

That was then. Now, it seems, that any “disturbance in the Force” causes a price rise for no apparent reason.........

No it doesn't. Another 9/11 would take about 30 bucks of front month crude in less than 24 hours. The economic slowdown from another 9/11 would drop oil prices across the entire strip.

jas3

[AlaskaErik]

Makes me glad I kept that little Kia Rio that gets 35-37 mpg. This should move the automotive industry towards diesels even faster.

[newguy357]

These people are morons. They’re the same ones who have been saying “gasoline is going to be $5-6 per gallon within six months!” since 9/11/01. They’re idiots. Of course, eventually they’ll be right, but not because they’re intelligent. It’s like me saying, “I’m going to die within the next six months.” If I repeat it every day of my life, eventually I’ll be right. Big deal.

[Red Badger]

I think now the falling value of the dollar against Euros etc. has more to do with the crude prices than anything else..........

[Capt. Tom]

This should move the automotive industry towards diesels even faster.

The price of diesel is higher than gasoline right now. - tom

[cowtowney]

“Options contracts are a simple way for investors to speculate on rising prices. Buyers do not have to keep them until the price hits $200 — they can simply sell them on as their value rises.”

Options contracts work both ways. You bet on oil going up or down and sometimes the price goes up or down. Who says that always rise?

The price is based on supply and demand, not speculators. The recent increase in oil is due to the decrease in supply caused by geopolitical instability. e.g. Venezuela kicking oil producers out; Nigeria’s instability; Iraq and Iran fighting. To the extent that these various problems settle down, there is a possibility that supply will increase and prices will decrease. There is also a possibility that demand will decrease due to a recession in the US.

Chavez has said that he was producing 3.3 mbd, but is most likely only producing 1.35 mbd. Chavez has been responsible for Venezuela dropping their production by 1 mbd since he was elected. (What a doofus!) Now that his country is in a world of hurt and he just lost his referendum, he is being more conciliatory. If he gets his act together, he could increase production. (If pigs had wings...)

[RayChuang88]

At US$200/barrel price, nobody could afford oil—the entire world’s economy would scream to a halt.

[AlaskaErik]

The price of diesel is higher than gasoline right now. - tom

Even so, they are much more efficient and cheaper to operate, even with prices the way they are now.