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Are investors pumping up price of oil?

Jill Barshay Sep 28, 2007
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Are investors pumping up price of oil?

Jill Barshay Sep 28, 2007
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KAI RYSSDAL: Oil is, almost all over the world, what’s called a dollar-denominated asset — when a country forks over cold hard cash for light sweet crude, payment is due in American greenbacks. At one point today, you needed 83 of those dollars to buy a single barrel of the stuff.

With no shortage of oil at refineries, our New York bureau chief Jill Barhsay looked into why prices are so high.


JILL BARSHAY: OPEC just raised oil output this month, so supplies are plentiful. Tim Evans of Citigroup says the weak dollar is pushing prices higher.

TIM EVANS: When the U.S. dollar falls, investors look to other assets to preserve value, typically hard assets like a commodity. That commodity could be gold, or copper or oil. That is more or less the knee-jerk reaction.

It’s not quite a tulip craze or dot-com bubble, but experts say speculators are streaming into the commodities markets. Stephen Schork is an analyst and trader in Pennsylvania.

STEPHEN SCHORK: Everyone that I speak to, even my friends who are lawyers and doctors, they all want a piece of this.

Oil is a particular favorite. Tom Kloza is an analyst at Oil Price Information Service. He says the weak dollar is only part of the reason that oil went from 50 bucks in January to 83 today.

TOM KLOZA: The weak dollar would be an ingredient in it, but it would be sort of like salt as an ingredient in an Italian gravy. It would give it some of the gusto or whatever.

Kloza says the real reason prices are rising is because of those speculators — they’re gambling on rising demand in places like China. But Kloza and Citigroup’s Evans both say worldwide demand isn’t growing as fast as people think.

They say there’s a danger these high oil prices could come crashing down. Evans calculates that oil should really be trading at $65 a barrel.

In New York, I’m Jill Barshay for Marketplace.

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