Liam Gallagher
As NC has stated they are my opinions. Just like almost all economic articles you will read or hear they are the opinion of the author. I’m sorry I don’t always give specifics. Quite frankly I don’t have the time. This doesn’t mean though I haven’t researched the topic. I will therefore try and explain my logic for you.
The key player in the energy markets has traditionally been the commercial traders which comprised generally oil producers and energy companies. In the last few years, i.e. since deregulation, they have been supplemented by a growing number of investment banks and hedge funds who own energy producing facilities and also the emergence of specialised energy trading firms. These recent entrants to the energy markets have added a large source of extra liquidity and hence volatility to the market. Industry estimates are that between 2002 and 2005 they added US$100-120 billion to the energy markets. While I haven’t seen recent figures a simple extrapolation would suggest these investment banks (pension funds) and hedge funds have probably added between US$200-240 billion to the energy market since 2002. Today, for every US$100 that is invest in the energy market, only US$5 makes it to the fuel pump or in other words a single barrel of oil is traded 20 times before making it to market. Ten years ago it use to be five.
Here is a graph of the world oil price between 1947 and 2008. Have a look at how much the market corrects itself after each bubble. Make what you will from this graph but most of us can have a guess how much it will correct after this bubble has ended.
PS: If I was to have a guess when the energy market will correct I would say first half of 2009 but it is only a guess.
