Thursday, January 3, 2008

The truth behind $100-a-barrel oil



That's the reason the price of oil broke the $100 mark yesterday, January 2nd.

At first sign of the news, many reports attributed the record price to "violence in Nigeria, Algeria and Pakistan, the weak US dollar and the threat of cold weather." (BBC)

But now it turns out the century mark was broken by a single trader, who bought a thousand barrels, the smallest amount permitted. He sold it immediately for $99.40, at a $600 loss.

Said Stephen Schork, a former floor trader on the New York Mercantile Exchange and the editor of an oil market newsletter: "He paid $600 for the right to tell his grandchildren that he was the first in the world to buy $100 oil."

What happens, though, is that when psychological price barriers are broken, some start panicking, filling their fuel tanks and what not....and of course, some traders will be willing to pay higher prices on the market. All adding price pressure.

Right on cue, Bloomberg reports today that crude oil is trading near that record mark.

And OPEC says it's unable to counter the rally, Libyan and Qatari officials said today. Further, the U.S. doesn't plan to tap strategic reserves, a spokeswoman for President Bush said yesterday.

Though I have no doubt that record would have been broken sooner or later, it's still interesting to note that this particular price jump stemmed from one man's vanity. His identity is not known at this time.

Here's the BBC's full report. And here's an opinion piece in today's Washington Post, by David Fleischaker: In Praise of $100 Oil.