Crude oil may reach a record $130 a barrel this year because pension funds are investing more in commodities, said Pierre Andurand, the chief investment officer of BlueGold Capital Management LLP, a hedge fund … “Next year, oil may rise even further to $150 a barrel.”
Okay, this is a hedge fund guy who is betting the ranch on oil and probably doing his part to drive up prices. But at the end of the day, this is an issue of fundamentals — supply and demand:
Oil companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BP Plc are finding it tougher to replace their findings and are drilling for harder-to-reach deposits while energy demand and crude prices surge to records.
Another little-discussed factor in the run-up of oil prices is the run-down of the dollar, and with it, U.S. living standards compared to the rest of the world. Thank you so much, President Bush!
Investors who are flocking to oil may be exacerbating the U.S. dollar’s plunge and pushing oil prices to new highs, according to the president of Cambridge Energy Research Associates Inc.
What you have normally is the flight to dollars as a refuge, but today instead there is a flight to oil,” Daniel Yergin said in an interview in Washington on March 5. “It reflects not only a weakening of the dollar, but the expectation of further weakening. Oil is a giant hedge against the dollar.
Thanks to the housing crisis, huge trade deficit, and a decelerating economy, we have a plunging dollar. That in turn has “pushed investors to buy oil, which has held its value better than the dollar. The result has been U.S. gasoline consumers being swept up in investors’ flight to oil, Yergin said.”
If this sounds like one of those vicious cycles in the climate, which threatens to spiral out of control, that’s because it probably is.