Oil price is a slave of hedge funds and private equity funds - a collapse below $90 inevitable
Carolyn Plaza
Jun. 7, 2008

The spectacular jump in oil price today confirmed what we suspected for a long time. The oil pit in NY was filled with hedge funds and private equity funds speculation money buying oil on any weakness of dollar.

As the employment figure came in worse than expected, the dollar dropped. The commercials looked at the dollar and started holding off selling the crude futures as the hedge against the commodity in ocean from Middle East. The slower pace of selling of the futures boosted the morale of the hedge funds and private equity funds. They quickly tried to cover their shorts and go long. As prices shot up, the index funds started adding more positions.

The jump in crude oil is typical of any commodity in the final days of blow off in many-year bull market. Expect some short-lived follow through with a massive crash within a month that will take crude oil below $90 a barrel. There after the margin requirement will be increased ten folds on the futures market. That will be the end of funds driven bull market in oil.

Two factors are responsible for crude price surge. First is the China-India effect where money countries make from globalization of trade (exploiting American consumer) is put to work subsidizing the native Indians and Chinese buy $2500 cars and drive then with cheap gasoline. The second, which is primarily responsible for this year’s jump in price, is the index, hedge, private equity and ETF funds.

Oil is ready to start its many-year bear market. Both the India-China effect and the funds effect is reversing at this time. These two effects will be responsible for $20 crude oil by year 2012.

Oil price is a slave of hedge funds and private equity funds - a collapse below $90 inevitable
Carolyn Plaza
The spectacular jump in oil price today confirmed what we suspected for a long time. The oil pit in NY was filled with hedge funds and private equity funds speculation money buying oil on any weakness of dollar.
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