99% of investors want into the oil market, and that just doesn’t make any sense, according to Societe Generale global head of research Patrick Legland.
Legland, speaking at the the Europlace International event at the NYSE, explained the oil market as a bubble, because a great deal of investors are jumping in without knowing what they are investing in.
“I smell a rat,” he said.
Legland said he was concerned about the potential for this oil price spike to create another recession, and described the current scenario, in which banks are raising interest rates in a low growth environment to combat inflation, as a “worst case scenario.”
The bank’s head of energy trading, Philippe Laraison, had a more straightforward explanation for the rise in oil prices: demand. Oil prices as being driven because of a 10% year-over-year rise in February of Chinese oil consumption, and a 1.5-2.0% increase world wide demand in 2011. Laraison also said that the instability in the Middle East has created a risk premium in the market of about $10-15 for Brent Crude.
Laraison also dispelled the suggestion that oil ETFs were driving prices higher. ETFs have, “no major impact, per se, in oil and gas markets,” he said.