So Much For Supply & Demand
Oil Speculators Lose Backing
by Gregory Meyer WSJ 9-17-08
"Evaporating access to credit and fears of an economic washout are taking a toll on oil prices, forcing speculators using borrowed money out of the market. Big banks may be less willing or able to absorb debt to boost trading positions, with inherently leveraged oil-futures markets.
The potential for less leverage--for borrowed money--at play in the oil-futures market has already helped spark a sharp fall in oil prices, which have lost about 20% of their value this month
The drop has come amid a slew of factors that should support prices, including a production cut by the Organization of Petroleum Exporting Countries, renewed attacks in key crude-oil producer Nigeria and a major knock to gasoline output in the U.S. Gulf Coast in the wake of Hurrican Ike.
One executive involved in oil trading said brokerages have reduced or canceled lines of credit to traders, even telling customers they need to double the amount of margin required from last week.
"If they want to put a position on and their requirement was a million dollars Friday, now it's $2 million," the executive said. The Nymex margin requirement for crude is currently about $10,000 per 1,000 barrel contract, and brokerages typically tack additional margin onto that."
excerpted from the Wall Street Journal article