April 29, 2006
Oil Prices and Hedge Funds
With rumors being rife that hedge fund managers were responsible for the spike in the price of oil, there is widespread speculation if there is a proportional link between the trading activities in hedge funds and the crude oil and natural gas futures markets. Hedge funds, which are private investment pools that allow rich individual and institutional investors to trade in various assets, including commodity futures, have been seen to increase their trading of oil futures, according to data from the New York Mercantile Exchange on the trading volume of crude oil futures contracts and natural gas contracts. A futures contract is an agreement to buy or sell a commodity or financial instrument at some future time. Money CNN reports:
"On any given day, the speculatives can make the price move higher or lower than it probably ought to, and I'm sure you could say hedge fund buying has helped push the prices higher," said Peter Beutel, president of energy risk management firm CameronHanover. But he added that not all hedge funds are holding long positions, and in the natural gas futures markets, hedge funds are actually holding more short positions - when investments are sold before they are bought in a bet that prices will fall - than long.
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