Soaring Fuel Costs – How much speculation is behind the price of oil?

The price of crude breaks one record after another, and producer nations say they're not to blame. Saudi Arabia's oil minister called the price spikes unjustified and attributed them to speculation on futures markets. Some analysts still insist that the price is mainly a function of supply and demand. Made In Germany sent its reporters throughout the world to get the opinions of fund managers and traders. Jens Korte checks out the mood at New York's NYMEX commodities exchange, Christoph Wanner speaks with Moscow investment consultants and Grit Hoffman is on the street in Frankfurt and Berlin. _________________________________________ New York - the nerve centre of the financial world and the world's leading oil exchange. With prices at their current dizzy heights, the situation has been described as a threat to economic growth. Much of the blame is put on stock market traders - who in turn blame growing global demand. Raymond Carbone, oil trader at Paramount Options Incorporated: "We have exploding demand in the emerging markets, these were not consumers of energy in any meaning for over 5 years ago. And I think specifically of China, India and of course the Gulf states. The Gulf states primarily exported energy, now they are using up to 40% percent of what they used to export." Germany's financial centre is in Frankfurt. The skyrocketing oil prices have led to some windfall profits here. Portfolio manager Klaus Breil is among the lucky ones. 68 percent of his energy fund is made up of shares in the oil industry; so when the prices rise, the oil companies profit and his fund does too. Only 20 percent of that is speculative, he says. Klaus Breil, Cominvest: "Prices for energy and commodities cannot remain high unless physical demand is high. And right now, demand for oil is at 87 million barrels a day." Smaller investors are now also looking to profit. A regular bank in Berlin. Non-corporate customers looking for reliable investments with healthy dividends are now a common sight here. Commodity funds with oil stocks are very popular - as an additional pension, for example. Investment consultant Frank von Mach, however, warns customers against investing just in oil. The price has been pushed up to unreal heights. Frank von Mach, Anlageberater Commerzbank: "We can explain prices up to 100 dollars ... But we consider anything above that to be speculative!" But he is wary of seeing all investors as greedy speculators. "It's less a question of speculators. These are individuals who read the paper and see a commodity that is continually rising in value. Plus everyone knows that the world's oil reserves are limited. Your nextdoor neighbour can be part of speculative market activity." The situation is similar in Moscow - where oil is a booming business.Ivan Lapatin trades shares in Russian oil companies like Rosneft and Lukoil. He doubts they'll be able to meet future demand. "I think oil prices will rise further. We'll soon be at 150 dollars, by the end of the year the 170 mark and next year 200 dollars. That's what'll happen." He doesn't fear the prospect of an oil price bubble bursting - something he believes would only come after a global economic melt-down. And that's a scenario he considers highly unlikely.

DW-World | June 17, 2008

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