As Oil Nears $100, Look Out Below

11/7/207
Analysts say that if speculators flee the market en masse, prices could drop even more quickly than they've risen.

There are 595 hedge funds that engage in at least some energy trading now, more than triple the 180 funds involved just three years ago. Fusaro estimates the assets involved in such trading total more than $200 billion, up more than 60% from the beginning of the year.

It's tough to get a firm handle on the speculation. A large portion of trading takes place in the unregulated, over-the-counter market. Still, some of the trading in crude oil takes place on the New York Mercantile Exchange (NYMEX), and there the market is approaching a record in terms of the number of crude oil contracts that predict a price rise.
Traders have committed to 135,000 contracts—each representing 1,000 barrels of crude—betting that prices will continue to rise. That's just shy of the record 155,000 contracts reached this summer.

Some analysts say that if the number of contracts rises sharply, oil prices could fall. "The exit signal for investors could be breaking through the 150,000 or 160,000 contract barrier," says Joel Fingerman, president of OilAnalytics.net, an energy consulting firm. "At that point investors could feel they're using all their bullets."