Yeah, yeah, it touched the $100 mark on January 2, but that was just a trader paying over the odds and making a loss in the process so that he had “the right to tell his grandchildren he was the one who did it”. Yesterday, though, the West Texas Intermediate price hit $101.32 – having been as low as $86.24 just a couple of weeks ago.
This is interesting, as a lot of hedge fund folk were betting heavily that with the US moving into downturn land, the oil price would ease too. The International Energy Agency had also cut its demand forecast for the year. So what’s the deal? Chris Flood in the FT cites four factors:
– First, demand in emerging economies is proving to be the real engine here: as Paul Horsnell of Barclays Capital puts it, “Shorting oil on account of a negative view on the US economy is always very dangerous and likely to backfire, because global oil demand growth is centered on emerging markets”.
– Second, there are ongoing supply disruptions in places like Nigeria and the North Sea; the supply outlook remains very tight.
– Third, a lot of investor inflows are arriving in the oil sector, seeking fairer climes than are currently available in credit and equity markets.
– And finally, there’s the OPEC factor. At its January meeting, it left production levels unchanged, ignoring calls to increase supplies, including from President Bush himself. Now, there’s speculation that OPEC supply might even be cut.
Various commentaries are wondering whether OPEC’s now actively planning to keep the price above $80. I’m wondering whether OPEC simply doesn’t have any more production capacity to give…