WEST PALM BEACH, FL (HedgeCo.Net) – Hedge funds may be returning to the oil markets, according to hedge fund analysts. Part of the reason is the prevailing volatility in oil prices. This volatilityenables hedge fund managers to make quick entry and exit in and out of the markets, locking in profits or losses depending on the market pendulum. Such return by hedge funds may also help to push oilprices in the international markets to near $60 per barrel.
According to Steven Miller, energy director at hedge fund Bakersteel Capital, volatility in the oil markets remains the sole factor drawing hedge funds to the oil markets. Miller said, “A lot of hedge funds are playing it purely for the volatility, there is no limit to the upside from a technical basis,� adding �There could be a big surge in activity if things look unstable from a geo-political point of view, then hedge funds will seize on the opportunity to jump in, the spare capacity, which acts as a buffer is not there, so there will be a lot more volatility� he explained.
As the winter draws nearer, depending on the degree and magnitude of the cold weather, demand for energy generally increases. This demand, in addition to disruptions in oil supply, plus low levels of oil inventory, may cause crude oil prices may shut up to record levels. Undoubtedly, hedge funds may seize such opportunities to look for alpha in a year which has seen lackluster returns for many hedge fund companies.
Kevin Norrish, an energy analyst with Barclays Capital said, “An increase in net length in heating oil and the potential tightness of this market suggests that speculative interest is likely to grow further.� Energy analysts at Goldman Sachs explained that �Speculative length in the oil market has declined more than what economic activity would suggest. Accordingly, we believe that speculative length will rise from the current 80 million barrels to 130 million,” Such views tend to support the expectation that hedge funds will return to the energy markets, and we may not have seen the peak in the global crude oil prices as yet.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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