On Monday I got a call from a reporter asking for an interview to discuss the oil market. At the time of the call, oil futures were trading $3 lower on the day, the “explanation” for this being this was the first morning after the terrific news our Navy Seals took out Osama. The reporter asked me if the top was now in for oil prices for this year? “Why would that be?,” I asked. “Well, Osama Bin Ladin is gone.”
“So what?,” was my response to that. He just couldn’t believe this wasn’t the most bearish news the oil market has just about ever had.
As we discussed the issue, oil futures started to find a bid, trading back up to just $2 lower on the day. I tried to explain to him the killing of al Qaeda leader Osama bin Laden has nothing to do with the price of oil. After all, when analyzing and trading oil during Osama’s life I don’t remember him ever entering the equation.
Now if al Qaeda was ever successful in taking out a production facility that would have been a different matter, but we never even heard of an attack like this in recent years. Oil prices continued rising, now only $1 lower on the day. And then once prices started trading higher that day, I think we were able to throw out the premise that Osama bin Laden had any legacy at all when it comes to oil. His nefarious legacy will only relate to 911 and his other heinous acts. Continued oil price appreciation will take place with or without bin Laden.
Now this is not to say oil prices have only one way to move; north. After all, prices are currently at the highest levels since July 2008, and for the first time have risen an unprecedented 8 months in a row. Is it a coincidence the dollar has fallen for the past eight months? I will let you be the judge of that statement. Now the dollar is due for a dead cat bounce and this could weaken oil prices in the short term.
However, we are entering the high demand summer driving season which traditionally has increased demand by about 3 million barrels per day. Additionally, China’s consumption shows no signs of abating as their economy is set to grow “only” by 9.5% this year. Europe is recovering economically as well, with wholesale gasoline prices in Germany recently reaching record highs.
As John D. Rockefeller once said, “the markets will fluctuate,” and the fluctuations today appear greater than ever. Oil prices will fall (and if Libya comes back on line could have a healthy correction), and they will rise, and my bet is after the next fall, the subsequent rise will take prices to new highs for the year.
George Kleinman is President of the Lake Tahoe based commodity advisory and trading firm Commodity Resource. He trades oil (and other commodities) for himself and his clients. If you are interested in having George trade for you, email him for additional information. Email: firstname.lastname@example.org. Phone 800-233-4445.