Wednesday, September 17, 2008
Who Saw The Collapse In Oil Prices??
Labels: Daily Disruptions
A great trend service explained how and why oil prices would collapse.
These guys were spot on when they said "oil prices will fall sharply in the next year to 18 months, leading to huge losses for many speculators"
the aggregate value of oil futures contracts rocketed from $13 billion in 2003 to $260 billion today. That’s a 20-fold increase in contract value, while the underlying price only quadrupled. In essence, the number of contracts quintupled, and with it their impact on the market
after the tech-bubble crash, and especially after the sub-prime market crash, the risk capital that sought out dot-com stocks and traded mortgages moved over into energy
hedge funds have gone into commodities as investors, rather than arbitragers.
Like real estate, commodities permit a high degree of leverage — typically 10 to 1 — compared to stocks margined at 2 to 1. Because of this ability to “leverage-up,” and the fact that the supply-demand equation has been unusually attractive over the last two to three years, these “new speculators” have been encouraged to bid up prices to extraordinary and unsustainable levels.