Too few sellers to cool feverish oil market
GENEVA (Reuters) - "More buyers than sellers," is often the answer traders give when asked why prices of shares, bonds or commodities are high.
For oil, this seems to be one explanation why the market has risen to record levels near $140 a barrel and stayed there, says Marco Dunand, chief executive of oil trading firm Mercuria.
"We've noticed in the last few months, it is more and more difficult to find people willing to sell the market," he told Reuters in an interview. "It's a kind of liquidity crisis."
Dunand, with partner Daniel Jaeggi, has helped turn Mercuria into one of the world's top 5 independent energy traders with turnover last year of $33 billion.
The company, created in 2004, is active around the globe trading crude oil and products. It has just signed a deal as part of a consortium to buy a refinery in Albania.
It is about to start natural gas trading in North America and aims to expand refined products into the U.S.
The firm's main office is in Geneva in Place du Molard, which has longstanding links with commodities trading as it was the city's commercial hub in medieval times.
Dunand, who has been trading oil for two decades, says record prices have changed the shape of the market.
The natural sellers, such as oil producers which traditionally hedge production by selling futures contracts, are no longer there, partly because of huge margin calls.
The margin payments, a kind of deposit required to trade futures, are now around $10 to $20 a barrel. "That was the price of a real barrel of oil not so long ago," says Dunand.
Oil has doubled in price in the past year and risen about 40 percent since the start of this year.
The advance partly reflects expectations that global supply may not keep pace with strong demand growth from newly industrializing China, India and the Middle East.
High fuel costs have already caused protests from consumers in the United States, Europe and Asia. Politicians are under pressure to find a solution.
"It's not surprising that citizens of the world are feeling a bit upset because of how much it costs to drive their cars," said Dunand.
"It's clearly a temptation to try to find the culprits." Continued...
