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Oil Prices: The perfect storm may blow over

Posted May 22, 2008

Raising production has not been enough to curb the buying frenzy this spring. Goldman Sachs has warned that prices could reach $200 in a final spike, and even the bears at Lehman Brothers say there may be enough momentum to keep the boom going until Christmas.

It is unclear whether hedge funds and investors piling into futures contracts have now become the driving force in a speculative bubble. The Bank of England said yesterday that they were not a factor.

Lehman’s latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion’s share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said.

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