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Daily Telegraph: Fortunes made and lost as oil price rises

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Daily Telegraph: Fortunes made and lost as oil price rises

By Sophie Brodie
Last Updated: 1:32am GMT 04/01/2008

Richard Arens, a local trader on the New York Mercantile Exchange, has shot to fame after a lifetime of obscurity thanks to his determination to print the golden $100-a-barrel trade ticket.

Mr Arens is part of a dying breed of risk-takers who rent their seats at a staggering $25,000 a month on the open outcry trading floor at the Exchange.
Traders on the floor of the New York Mercantile Exchange try to make a quick profit as crude oil rises

The deal lost him $600 but that’s a small price to pay for recognition and a great story to tell the grandchildren. Unfortunately, as a local he had to settle up at the end of the day.

If he had held the position just a few more hours, he would have seen oil break through $100 a barrel for the first time on news of lower than expected US stocks and geo-political uncertainty.

He might even have made a profit on his bet.

Moreover, analysts warn it could be just the beginning of a sustained upward trend as demand for oil continues to outstrip supply. Since the start of 2007, the price of “black gold” has increased by 57pc.

It has risen steadily on demand from emerging market countries such as India and China, depleted stocks and a weakening dollar. Threats to current supply, in the form of violence in Nigeria and Venezuela, and fears of future threats to supply, such as a nuclear Iran and unrest in the Middle East, have also been priced in.

The latest rally comes amid another round of turbulence in oil producing Nigeria and Algeria. Troubles in Kenya following the election debacle have also added to the uncertainty. Meanwhile, a cold snap in the US and Europe has also squeezed supply.

One senior oil trader at a US investment bank said: “The cold has a psychological impact on the immediate price but won’t have an effect over the long term.”

Nonetheless the latest price hike has already triggered expectations it will translate into higher fuel bills and increase inflation. This could hurt Western economies such as the US already hit by the credit crunch and housing market collapse.

The European Commission warned yesterday that high oil prices will affect economic growth. Amelia Torres, a Commission spokesman, said: “If these very high levels are maintained, it will of course have an impact on the EU economy.”

The Commission is forecasting average oil prices at $78.80 a barrel in 2008 and $76 in 2009. However, it remains more optimistic than a leading German economic institute which is predicting prices will rise to $150 in five years and $200 in 10.

Among the investment banks, Goldman Sachs, which was the first to predict oil breaking the $100 a barrel barrier, is the most bullish. Its analysts predict an average $95 a barrel but said the price could reach $105 by the end of this year.

Lehman Brothers predicts an average price of $84 through 2008. Morgan Stanley, meanwhile, is more conservative with oil prices forecast at an average price of $80 in 2008 and $83 in 2009. It says: “Prices will rise to $90 in 2012 in our base case.”

High crude prices should benefit major oil companies such as BP and Shell, though they will have to compete with governments hoping to share in the gains. They could also face higher production costs.
Meanwhile, Gulf Arab states such as Qatar and Saudi Arabia are reaping record income from oil exports, funding projects at home and abroad.

Despite the price rises, the oil producing countries in OPEC have resisted calls to increase stocks, saying the market is being made by speculators.

While Mr Arens’s performance lends weight to this theory, the market peaked above $100 yesterday on real concerns that US stocks were lower than expected.

Many analysts believe that the only threat to the high price is a global recession.

While the world economy is expected to slow, most observers expect interest rate cuts from the US Federal Reserve to stave off a full blown retreat.

Other commodities such as palm oil, gold, platinum and soybean continued to power ahead this week on the back of global demand.;jsessionid=U0LMCZGTCBLRFQFIQMGSFFOAVCBQWIV0?xml=/money/2008/01/04/ccoil104.xml and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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