Oil has been range bound lately, spending most of the last year between $70 – $80 per barrel.As a result, physical oil traders, ie. those who actually buy oil in one part of the world and then sell it into another, have actually been struggling lately since they thrive on volatility.
Still, the subdued volatility of oil has hidden a growing perception of oil as an asset class for financial investors, and this growth of financial speculation is creating a large source of potential oil demand, should the oil outlook get even moderately more bullish:
Daniel Jaeggi, vice-chairman of Mercuria, said the swathe of investors who have moved into energy markets had complicated the marketplace, adding to concerns about long-term supply.
“They perceive oil as an asset class as opposed to simply a strategic commodity,” Jaeggi said, also suggesting such moves were not yielding much at the moment. “Oil as an asset class has not been a winning strategy.” Executives at the Geneva conference also described a tough 2010 for trading compared to 2009, when volatile markets offered plentiful options to broker oil and pocket gains from swings.
“The next time we have synchronised economic growth all the way around the world, as we saw in 2007, oil will have another price spike. That is my prediction,” he said, adding: “80 dollar oil will run out probably faster than people think.”
While these could be merely the words of a physical oil trader desperate for some volatility, the message is that an oil price spike could come out of nowhere.