Anorak News | The Oil Price Bubble

The Oil Price Bubble

by | 27th, May 2008

oil.bmpOIL price rises. Discuszzzz.

Oh, come on, the price of oil is shooting up faster then Pete Doherty strapped to a fireworks. It’s interesting stuff.

Before the bank holiday, US light, sweet crude gained 99 cents to $133.18, while London Brent added $1.21 to $132.78.

Up and up and up it goes, where it stops, no-one knows. Well, not quite. The oil price goes up and it goes down. There is much volatility in the market.

US crude rose to $135.09 on Thursday but profits were taken and the price fell back to $130.81.

Of course, if people are selling, then people are buying. The market may have fallen back by over 4 cents a barrel, but it then shot up once more.

Why? Well, there’s the Movement for the Emancipation of the Niger Delta which claims to have sabotaged a Royal Dutch Shell pipeline. Armed action has impacted upon Nigeria’s oil infrastructure and oil production has been cut by a quarter.

So less oil is being produced in one of the big oil producing nations. So oil prices will rise.

The spread on Brent crude stands at 132.33 – 132.38. A buy looks like the clear choice. And sure enough for any punter it must be favourite. Take a buy position over a few months and back yourself.

The other punt is on the dollar falling. “It’s very much the US currency at play,” says Mark Pervan, an analyst at the Australia & New Zealand Bank.

“The market is reassessing the dollar and has probably taken the view that the dollar hasn’t bottomed out and may fall further,” he added. And oil is bought and sold in dollars.

Billionaire speculator George Soros says: “Speculation… is increasingly affecting the price. The price has this parabolic shape which is characteristic of bubbles.”

Or as Jeff Rubin, Chief Economist and Chief Strategist at CIBC World Markets, puts it: “Even at $133, demand hasn’t been reined in, and without a real raise in supply we think it’s ultimately going to go over $200 a barrel.”

The buy on the GBP/USD sits at 1.9819. The thinking says buy. But that’s the theory, and day to day punting is a tough call.

Posted: 27th, May 2008 | In: Money Comment (1) | TrackBack | Permalink