Fundamental Analysis says the oil price should be lower – but speculative investment is keeping it high, why?
PlattsOilNYMEX June crude settles up $2.08/b at $53.20/b Friday despite staid equities, dollar. June RBOB, heating oil both settled up 5.16 cents
The oil price support continues to fascinate me given the current demand and days of stock cover. I expected this quarter to be a very low demand cover leading into driving season, and it has been. At the same time, inventories are full , so while governments in the past have used the 2nd quarter to refill reserves, there is no need for them to do so now. I expected prices to fall, especially given the fact that driving miles are lower than usual for this time of year. Refiners have been doing a good job of maintaining reasonable utilization rates and therefore gasoline stocks are below the 5 year average, providing support for the price. But discussions with traders recently seem to suggest that even that isn’t enough to support a >$50 oil price.
Perhaps the speculative argument finally applies. An expected weakening of the US Dollar is pushing investors into ‘real’ investments – commodities. And gold is much more expensive than oil currently, so oil is benefitting. It can only be at times when fundamentals don’t support price that the speculative investment effect becomes obvious, and this could be one of those times. I will be interested to see what happens over the next few months – especially as we start to see how badly the recession affects the driving miles of the US. I am betting on the oil price range trading between $40 and $60 – but I have a colleague willing to take me on and say the oil price gets near $100 again over the next few months.
Interesting
Krista Walter is Assistant Director, Investments Australia & New Zealand at Intellectual Ventures.
Previously, Krista worked at Macquarie Funds Management as an analyst. Krista utilised global oilfield management experience to facilitate fundamental analyses of companies and to make investment recommendations across all the Macquarie Funds groups based in Sydney, Australia.
May 24th, 2009 at 10:54 pm
I think that America is stockpiling. Would anyone agree with me that it has to do with General Motors and Chrysler and their financial situation and their bid for buyins from European countries.