Sports Calendar

“Using IG Index (the spread-betting exchange), I started buying in September, slowly at first and then building up. I still have a stake worth £350,000 from an original risk capital of $50,000 (£27,000). The past few weeks have been great.”

Last week was also good for David Harding, managing director at Winton Capital Management, one of London’s biggest commodities trading advisers (CTAs), a type of hedge fund that specialises in futures. These funds now account for a large slice of oil trading.

Harding was in Crete on holiday when he heard the oil price was surging. He said: “This time last year the price of June 2004 oil futures was about $25 a barrel. With the price around $40 some people have made 66% on every barrel they own. It’s hard to say exactly how much we have made but it’s been a good week.”

Like most CTAs, Winton’s investment strategy is directed by computer-generated statistics that aim to spot long-term trends. Last year the system pointed to oil and many CTAs piled into the futures market.

Kitson said: “A lot of the trades are by CTAs. Then when the market is going up, they buy. So it can be self-perpetuating and push the price up further.”

But for many big investors, particularly pension funds, oil futures offer much more than quick gains. Goldman’s Currie said: “Equities and bonds have not been generating good returns recently. Fund managers are looking elsewhere and commodities have proved very attractive since they are not correlated to equities or bonds.”

Money is also flowing into the sector because investors believe prices will rise further, especially with the world’s oil production at full stretch. For the first time in Opec’s 44-year history, the cartel is close to running out of spare capacity. All members, except Saudi Arabia, Kuwait and the United Arab Emirates, are running at full tilt. After Thursday’s Opec decision, they will all be doing so soon.

Kitson said: “This means that if there were an incident that disrupted the supply — terrorist activity in Saudi Arabia or an oilfield blowing up in Venezuela — there is nowhere to go for more oil. In that case prices would rise sharply.”

Many investors believe this could happen. Crispin Odey of Odey Asset Management the big London-based hedge fund, said last week that he expected the oil price to hit $80 a barrel.

There are some other obvious big-business winners from rising oil prices, not least the oil companies. The FTSE Oil index, which captures all oil and gas groups listed in London, has risen by nearly 1,000 points since February, from just over 4,700 to just below 5,700.

While the big names of the European oil sector — Shell, BP, Total and Statoil — have been buoyed by the price rises, the big winners have been smaller exploration and production firms. These are normally viewed with some wariness by investors because they rely so much on finding exploitable oilfields. High oil prices greatly increase the chances of their prospects becoming profitable. Shares of Cairn Energy, one of Britain’s larger oil minnows, have soared from about 300p at the start of the year to above 1,000p, while Premier Oil has gone from 300p to 550p.

But other quoted companies have suffered as the oil price has risen. Standard & Poors, the credit-rating agency, has identified the sectors that are directly hit by rises in the oil price. The shares of utility companies fall in line with rising oil prices, said analyst Charles Dautresme, as do those of hotel, restaurant, retail and capital-goods companies.

Industrialists said high oil prices have added greatly to the cost of manufacturing in Britain, with some companies drawing up contingency plans for shutting down some processes this winter if energy costs continue to rise.

The wholesale price of gas, the primary fuel for most energy-intensive industries, has risen in tandem with oil (see chart below). Large industrial groups such as Corus, BOC and ICI are now paying 40p per therm (a unit of energy) compared with 17p two years ago. Companies expect the price to go even higher in the next few months because of the relationship between oil and gas markets.

There is no direct correlation between oil and gas prices in Britain, but on the Continent most gas-supply contracts include prices that are index-linked to oil. British gas prices are in turn influenced by continental prices because of shippers’ ability to shift gas through the Bacton/Zeebrugge interconnector, a giant gas pipeline.

Additional reporting by Dominic O’Connell

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax