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RE: UPdate -Wallstreet wrong-way bets blame $135 Crude

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#6836

Charles Randall
Participant

<Here is updates on continued proof  Wallstreet …not oil companies are to blame for high crude & product prices because of over-speculation. Hopefully enough will get creamed on wrong-way bets that lose money. Unfortunately oil companies are not taking leadership (unlike in food industry strong push against Ethanol problems) & did not let present this issue forcefully or call for Congress act on Wallstreet at hearing this week – instead they opted for drilling rights & tax avoidance issues ….. neither are likely with liberal factions of congress in control. – CER comments>
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Blame Wall Street for $135 Oil on Wrong-Way Betting (Update1)
2008-05-21 22:33 (New York)

By Alexander Kwiatkowski and Grant Smith
     May 22, 2008 (Bloomberg) — Oil’s rally to a record above $135 a
barrel came as traders bought crude to cover wrong-way bets that
prices would decline, according to data
from the New York
Mercantile Exchange.
     The number of outstanding futures contracts, known as open
interest, fell 8.1 percent in a week to 1.36 million at the same
time that prices rose 2.6 percent, the data show. Falling open
interest and rising prices are signs that traders are buying to
exit so-called short positions that would profit if oil fell, and
lose money as they rose.
     “In a market like today, which is trending higher while
open interest is falling, it’s a sign that money is moving out of
the market,” said Stephen Schork, president of Schork Group Inc.
in Villanova, Pennsylvania. Open interest in Nymex crude
futures peaked this year at 1.5 million on March 13.
     Crude futures yesterday gained 3.3 percent to $133.17 a
barrel for July delivery, the largest advance since May 2 on the
Nymex, and touched a record $135.04 today. Oil rose after a
government report showed U.S. inventories unexpectedly declined
last week. Oil has more than doubled in the past year.
     Open interest has been sliding for months, after the number
of outstanding crude futures reached a record 1.58 million on
July 16, 2007.
     “It is not a growing market, it is a shrinking market in
terms of open interest,” said Olivier Jakob, managing director
of Petromatrix Gmbh in Zug, Swizterland. “It is also
facilitating the move upward.”

                         Shell’s View

     Oil prices have closed at record highs on 27 days so far
this year, prompting OPEC oil ministers including Saudi Arabia’s
Ali al-Naimi to declare that the rally is led by investors,
rather than a shortage of supply.
     Crude for delivery in December 2016 ended yesterday at
$142.09 a barrel, signaling investors anticipate prices will
gain for years. Some traders speculate oil will reach $200 this
year. The price of a December 2008 option contract that allows
the holder to buy 1,000 barrels of crude at $200 each jumped 67
percent in three days to $1.72 a barrel yesterday on the Nymex.
     U.S. oil executives told Congress yesterday that prices
should be between $35 and $90 a barrel. John Hofmeister,
president of Shell Oil Co.
,
the Houston-based subsidiary of
Royal Dutch Shell Plc, pegged the proper range “somewhere
between $35 and $65 a barrel.”
     Saudi minister al-Naimi said in March when oil was trading
near $100 that prices were unlikely to fall below $60 or $70,
representing the cost of producing alternatives such as biofuels
or tar sands.
     Biofuels such as ethanol are the only alternative to crude
oil, Sun Microsystems Inc. co-founder Vinod Khosla said in an
interview on Bloomberg Radio yesterday.
     “The only realistic option that we have, and there is none
other, is to use biofuels,” said Khosla, an investor in ethanol
makers. “There is only one choice.”

*T
To contact the reporters on this story:
Alexander Kwiatkowski in London at +44-20-7330-7450 or
akwiatkowsk2@bloomberg.net
Grant Smith in London at +44-20-7330-7353 or
gsmith52@bloomberg.net.

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