Oil demand and speculation

According to a Lehman Brothers study, for every $100 million new inflow of funds, crude oil prices go up by 1.6% or approx $ 2.2 a barrel.The amount of Commodity index futures held in 2003 was 0.4 million and in 2008 its over 2.8 million. Out of 2.8 million futures currently held , the number of contracts held by physical hedgers is approximately 1.6 million contracts. The remaining 1 million odd contracts are held by speculators.

As per a study held by a wall street investment bank. In 1998 the value of Commodity Index futures contract held by physical hedgers was 79% compared to 34% in 2008.In the case of Crude Index speculators have increased their share holdings from 12% to 31% and crude oil futures from 16% to 32%.The economist data reveals that the Annual change in world oil consumption peaked in 2004 to 2.5 million barrels a day , since then it has slowed down to 0.8 million barrels in 2008

In an testimony before US senate comittee on Homeland security and Govt affairs, Masters showed that index speculators have a stockpile of futures equivalent to about 847 milion barrels of oil. To have an idea of the amount of speculation. China and india who are blamed for increase in the crude oil prices consume approx 2550 and 910 million barrels respectively per year.

Petroleum Minister for India Mr. Murli Deora while addressing the World petroleum conference in Madrid on Thursday rubbished the Wests theory that the rise in demand for Oil and gas was fuelled by China and India. He said that China and India account to less than 13% percent of worlds oil consumption. He also said that both the countries have registered rapid economic growth with a less than propotionate demand for Oil.

Experts say that speculation plays a major role in the crude oil prices and the future holds high risks.Crude oil closed at $145.3 a barrel on NYMEX exchange.