5-28-08 by dugan
Just as the price of oil seemed ready to sag a bit, another big investment bank "predicted" $150-a-barrel in the near future. Lo and behold, oil went back above $133. A story on the day’s trading from CNN Money’s David Goldman has the most succinct description I’ve seen of how such self-serving predictions drive up a speculative market:
Oil fell nearly $3 earlier in the day, but rebounded after a Morgan
Stanley analyst said crude prices could easily reach $150 this year,
and that high prices will not be enough to curb demand in developing
countries."It seems that these big banks are driving oil prices,
where instead it used to be the other way around," said Alaron Trading
senior market analyst Phil Flynn.As the U.S. economy has
deteriorated in the past six months, many investors have engaged in
speculative trading of commodities such as oil to serve as a hedge
against a generally weakened dollar. Banks’ predictions of rising
prices only gives credence to oil traders that their investment will
deliver a strong return.