The argument that speculators and big funds dominate the market gained proof
Crude oil prices jumped $25 a barrel on Monday ? the largest one-day rise ? as investors betting on falling oil prices were forced to cover their positions ahead of the expiry of the current benchmark futures contract.
That was the absolute proof in favor of the argument that in our times speculators and big funds ?especially hedge funds - dominate the market.
Weaker supplies from oil producing countries like Mexico, Nigeria and Saudi Arabia in recent weeks were not the real reason for crude oil"s wild ride, but just the excuse.
At the same time, the huge amount of capital than institutional investors control, allows them to turn every product they like to a market commodity. That has happened with oil contracts during the last 18 months, since the investors decided to abandon the falling dollar and turn bullish to the oil market. But what really happened at the beginning of the week and oil prices went crazy?
Investors who had bet that oil prices would continue falling were forced to close their positions ahead of Monday"s expiry of the October oil futures contract at the New York Mercantile Exchange, traders and analysts said. The process is known as short covering.
The investors had little option but to cover their short positions at any price. If the positions had not been closed, they would have to take physical delivery of barrels of oil.
It is more than clear that Monday"s story is not a normal market"s reaction, but it was an absolute technical manipulation. But this behavior ?especially in a more than uncertain economical environment- is very dangerous for all the sectors of world economy and of course for the maritime industry as it makes fuel costs higher and at the same time can lower cargoes volumes, as the world economy keeps deteriorating.