Periscope: How Hot Money Is Pushing Oil To $100 a Barrel And Beyond

Periscope: How Hot Money Is Pushing Oil To $100 a Barrel And Beyond

As oil prices swung wildly last week—first surging breathtakingly close to the $100 mark, then dropping off again—there was some frantic finger-pointing over just who (or what) was to blame for the latest spike in prices. Resisting calls for OPEC to pump more oil to cool off markets, Saudi Oil Minister Ali al-Naimi insisted that supplies and inventories are meeting demand and don't justify the current sense of crisis. To bolster his argument, al-Naimi carted Western attendees of last week's OPEC summit in Riyadh into the desert to show off a $500 million mega-expansion project that will raise the country's production by 250,000 barrels a day. The $25 jump since September, al-Naimi said, was the fault of "speculators" beyond the cartel's control.

Self-serving? Perhaps. But al-Naimi's view has lately been echoed by oil-company executives and Wall Street analysts. Indeed, hedge funds, investment banks, program traders and ordinary investors have been piling billions into oil futures, gas options and complicated energy derivatives.) One analyst says the energy-assets market—opaque, and virtually non-existent a half decade ago—could be as big as $20 trillion. Energy hedge funds now number 600 (up from 180 in 2004). Investment banks like Morgan Stanley have made up to a quarter of their recent profits from energy trades, says hedge-fund tracker Peter Fusaro. While the oil analysts polled by NEWSWEEK last week differ on the extent of the impact, they all agreed that the money players have helped drive up the price. "The market is no longer about physical supply and demand for oil," says Ben Dell, energy analyst at Sanford Bernstein in New York. "The Saudis could be pumping another million barrels and it wouldn't change a thing." In a report he wrote last week, he estimates the oil-price spike could hit $140 before coming down, in large part thanks to speculators.

With most analysts expecting oil to eventually settle at $60 or $70, what's keeping all the money pouring into the market? Many investors seem to be using oil as a hedge against a weak dollar. Others are simply riding a profitable trend. "We've had five or six years of rising prices, and it hasn't affected supply and demand," says Paul Horsnell, head of energy research at Barclays. "So the market has been happy to keep testing higher prices." Once that signal comes (e.g., drivers buy less gas or switch to fuel-efficient cars), "the drop will be sharp and abrupt," says Dell. Until then, the herd instinct will likely prevail.
—Stefan Theil and Zvika Krieger

Supreme Puppeteer
Conventional wisdom has it that recent cabinet shuffles in Iran, such as last week's confirmation of new ministers for Oil and Industry, represent President Mahmoud Ahmadinejad's increasing power. But it can be read another way, say close observers of the Tehran scene: the Supreme Leader, Ayatollah Ali Khamenei, may be setting up the firebrand president for a fall.

Nothing big happens in Iran without Khamenei's say-so. Until now, he's given Ahmadinejad approval for such bureaucratic jujitsu. But observers like Vali Nasr, the Iran-born author of "The Shia Revival," say Khamenei's support isn't so clear. Regarding a similar shakeup last month, when Iran's top nuclear negotiator was shoved out in favor of an Ahmadinejad ally, Nasr points out that a top adviser to Khamenei openly mourned the switch. Yet by allowing the president to make such moves, Khamenei has ensured that, as Nasr puts it, Ahmadinejad will bear "responsibility for his own failures."

That's in keeping with a popular view: Khamenei is a pragmatist who could discard the ideological president when he has served his purpose. So, if Tehran's relations with the International Atomic Energy Agency sputter and the country's struggling economy leads reformists to win next year's parliamentary elections, Ahmadinejad may be crippled—but he'll be the only one.
—Seth Colter Walls

The Kims About Town
North Korea's young Kims aren't exactly homebodies. Last year one of supremo Kim Jong Il's three sons was seen at Eric Clapton's European tour. And Kim Jong-Nam, 36, the eldest son—once caught en route to Tokyo Disneyland on a fake passport—was spotted last week in Paris. "I just went to the dentist and I can't talk much. I'm sorry," he said. He reminded reporters surprised by his fluent French that he went to a Swiss boarding school. But he's now in a key government post at home after a few years in Macao's high life. Back in the running for Kim Senior's job? One can only guess, but if another Kim does take power, he'll be more worldly than the last.
—Christian Caryl

Funny Maps Of The World
I love maps. they're useful. They're pretty. And quite often, they're free. I love all kinds of maps—old, new, Mercator, treasure, you name it. And after poring over The Onion's latest parody, "Our Dumb World: Atlas of the Planet Earth," I've decided I like funny maps best of all.

The Onion's map of the United Kingdom, for example, shows the burial site of Mother Goose, a literature mine and the world's grayest building. Ukraine's includes the location of a "headless-doll factory." Like any regular atlas, "Our Dumb World" includes lots of facts, or "facts." Wales is the birthplace of the "oldest, longest, least pronounceable language in the world. When spoken, it sounds like a beautiful song, but when written, it looks like the alphabet just vomited."

This is the best parody since the National Lampoon published its phony newspaper, "The Dacron Republican-Democrat," in 1978. But The Onion's atlas is not merely parody. Coupling rage with humor, it transcends its own silliness with Swiftian satire. Take the entry on the Democratic Republic of Congo, which "has endured decades of brutal civil war, in which rebel forces have adopted the gruesome practices of raping women with machetes, decapitating babies, and even … they, they just … with their teeth, they … Jesus f––-ing Christ you don't want to know what goes on here." The Onion's picture of our world is not factual, fair or balanced. But it certainly rings true.
—Malcolm Jones

Reality Check
Former child soldiers are portrayed in films, books and newspapers as psychologically damaged killers, likely to threaten a country's security long after a war is over. But even though many were brainwashed and forced to kill, there is little evidence these boys suffer lingering emotional distress. A UNICEF study of former child soldiers in northern Uganda reported that more than 90 percent have good social skills and are not aggressive. Other research also suggests they are quite resilient, and usually settle well back into civilian life.

By the Numbers
Canadian researchers probing the online drug industry collected spam for a month, then went back to the e-mails to place orders. The most striking finding: most of the spam sites had already disappeared.

1,334 : Total number of spam that offered health deals of some kind, one third of 4,153 spam collected

27: Number of Web links on health spam that worked at the end of the month, and received orders

9: Number of orders that led to actual deliveries; 17 orders went unanswered

1 : Number of spammers who took an order and kept payment, but delivered no drugs

How The Euro Got Hip-Hop
Hip-hop culture has long glorified the almighty U.S. dollar. Rap lyrics praise it, bling jewelry flaunts it and music videos always seem to feature a shower of cold, hard cash. But now the dollar is in such a sorry state—it hit a new low this month against the euro, Canadian dollar and Chinese yuan—that even American rap moguls are rejecting it. In the video for his new song "Blue Magic"—from an album inspired by the film "American Gangster," no less—rapper Jay-Z can be seen flashing stacks of €500 bills. It's a far cry from the "presidents" (i.e., dollar bills) that he praised in his 1996 debut album, "Reasonable Doubt." On the official Web site of Wu-Tang Clan, the New York-based rap group that coined the phrase "dolla dolla bill, y'all," the group lists the price for its new CD in euros only. And reports flew last week that the Brazilian-born supermodel Gisele B?ndchen now insists on being paid in euros, not dollars, though her sister, also her manager, has denied it. (Representatives for Jay-Z and Wu-Tang did not respond to NEWSWEEK requests for comment.) "When pop culture starts doing what the most sophisticated financiers are doing, it makes you think we might be really screwed," says Howard Davidowitz, chairman of Davidowitz & Associates, a New York consulting and investment banking firm.

These developments could spark what market pundits call the "point of recognition"—the moment when the public finally wakes up to a market trend, usually a sign that it's far gone. Jay-Z, of course, surely knows exactly what he's doing: the man from the Brooklyn Marcy Projects has already built an empire worth more than $500 million. "Of course Jay-Z is using euros instead of dollars," says Rafi Kam, the founder of Oh Word, an American hip-hop blog. "He's very aware of what has the most value, regardless of where it comes from in the world." Soon enough, 50 Cent might need to rechristen himself 50 Pence.
—Jessica Bennett

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