Oil Prices Inflate As Speculators Bet On Stimulus

“SIGNIFICANT RISK”

However it is far from certain the Fed will announce QE3.

Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a note that he could not see why the Fed would be in a hurry to launch more quantitative easing: “U.S. financial conditions have eased quite a bit. While the United States is not growing at a pace, the case for further QE right now seems quite debatable.”

Dean Maki, a Barclays Capital economist in New York, agreed: “We do not see a convincing case for QE3 in September.”

Without the three obvious props — North Sea, Middle East war or QE3 — oil supply and demand fundamentals look sloppy.

All three of the big oil forecasters, including the U.S. Department of Energy, say global output has exceeded demand by a wide margin even with an embargo on Iranian oil, filling up stocks of oil and offering a sizeable cushion to cope with any unexpected supply shock.

“Forecasts paint a very bearish oil picture,” said David Hufton, managing director of brokerage PVM Oil Associates.

And yet investors’ appetite for oil has risen steadily with speculators increasing net exposure to crude oil futures and options on both sides of the Atlantic.

Data from the U.S. Commodity Futures Trading Commission and InterContinental Exchange show net long positions have increased in Brent and U.S. crude despite three months of declines in open interest and fairly low traded volumes.

Commerzbank’s Fritsch said this could make a sell-off sharper if it comes.

“If no round of QE is announced by the Fed this month, the oil market is likely to dip. Hopes are riding so high that there is a significant risk of prices falling.”