The WSJ reports news that seems to indicate that the Saudi oil minister was correct in blaming the “speculators” for a good part of the run-up in oil prices:

Wall Street’s speculators, who contributed to oil’s 49% rise since the beginning of the year, have shifted direction this week. Yesterday marked the expiration of a key deadline in the crude-oil options markets. As it became clear that oil wouldn’t hit $100 a barrel by the deadline, a chain reaction of selling ensued as traders unwound bets pegged to the risk of $100 oil…After rising as high as $98.62 a barrel a week ago, the benchmark oil-futures price on the New York Mercantile Exchange hit a low of $90.13 yesterday before closing at $91.17, a one-day drop of $3.45…

The closer oil crept to $100, the more investment banks had been buying oil to hedge the risk of losses on the contracts, Lehman contended. Then, on Monday, oil opened sharply lower and stayed down, as traders digested the chance of an OPEC production rise and slowing fuel demand amid a shaky U.S. economy. Nearly a third of all options to buy crude at $100 on the New York Mercantile Exchange were set to expire yesterday, and it became clear that the options were likely to end up worthless. Suddenly, Wall Street firms didn’t have to buy oil as a hedge, says Lehman analyst Adam Robinson, and prices plunged.

Gasoline demand in the U.S. is still growing, but some data suggest the growth rate has slowed considerably. Department of Energy data show a four-week average of U.S. gasoline demand is growing at slightly less than 1% compared to year-earlier levels. In the 1990s, an era of inexpensive fuel, annual growth was more in the 4% to 5% range

The demand charts have been falling of late, but the price rose relentlessly — until the fever broke:

Marketwatch provides some context for the declines in demand, in particular how small the decline is in terms of the 88 million barrels per day of demand forecast for 2008:

The Paris-based IEA cut its estimate for fourth-quarter demand by 500,000 barrels a day as record prices sapped energy consumption. A survey by Platts, a provider of energy and metals information, showed the 12-member OPEC pumped an average of 31.11 million barrels a day of crude oil in October, or 350,000 barrels a day more than September…

The IEA also said next year’s demand is forecast at 87.69 million barrels a day, or 300,000 barrels a day less than a previous estimate, given higher prices, weaker-than-expected economic data from the U.S. and the former Soviet Union, and delays to European heating oil restocking.

Saudi Arabia is still on target for an increase to 12.5 MMbpd of capacity by 2009. While a price spike can of course occur, it is important to always recall that the history of commodity prices in things like oil, steel, paper and similar goods has never been a one-way ticket to the stars.

This entry was posted on Wednesday, November 14th, 2007 at 5:49 am and is filed under General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.