By Kevin Kerr, President and CEO, Kerr Trading International
As the World begins to show signs of a slow awakening from the economic implosion of 2007-2009, the window of opportunities for getting a handle on energy prices is rapidly slipping away. When crude oil hit $147, most of us who have been trading it for a number of years felt that the price was not sustainable. Clearly we were correct. There is an old saying that traders use and it was drilled into my head back when I was on the trading floor at the ripe age of 19. The cure for high prices is high prices. The same saying holds true for extremely low prices as well.
First Blame All the Speculators
When we saw oil prices fall from $147, the unwinding was dramatic and quick. Prices for crude actually got back down to $36 briefly and the hand wringing and blaming of speculators commenced. We saw government and regulatory investigations commenced immediately and the result was they uncovered little if anything, except maybe a free market doing what it does, trade free.
Prices quickly ramped back up to the $80 level and have been there ever since, regardless of the global economic condition and weak demand and oversupply. So what will happen as we start to see demand pick up? It’s a safe bet that oil prices will not go lower. Speculators and all of the new trading products certainly contributed to the volatility in the energy sector but quickly supply and demand brought the markets in line again – that is the entire purpose of price discovery and it worked perfectly. The problem with focusing solely on speculators is that it simply fostered the denial that got us to $147 in the first place. Crude at $90 was, and is, sustainable just with demand and pent up demand as well as growth, even in a slow economy. The reality is that the time we wasted blaming speculators on running amok has simply taken away from any time spent on meaningful conversations about real solutions, or why the price spike happened in the first place.
At $140 we began to hear earnest conversations about drilling offshore and in Alaska. We saw consumers begin to look seriously at hybrid vehicles, and most importantly we saw significant investment in alternatives. Everything from ethanol to solar and nuclear to shale was…
