Oil Price

The oil price retains good economic value below $50 bl. The price
is giving mixed signals during this normally strong seasonal period
which can run out through March. It is well off the late 2008 crash
low of $33+, but has not been able to take out short term resistance
in the $46-47 area. At present the shorter term uptrend in evidence
since mid- Feb. '09 is the firmest to date since the price moved up off
the crash level.

Still, the price should be doing better. It is behaving atypically for a
new cyclical advance during this normal strong seasonal period, and
the failure to clear resistance puts it closer to bear market behavoir.
Since cyclical bear markets in oil typically last 12 - 18 months, the
late 2008 low looks suspicious given that the all time price high of
$147 came in mid-2008 as well as the severity of the decline in
global petroleum demand. So, although it has a good short term
technical profile and could push higher before the end of the month,
claiming that the price "bottom is in" is an against-the-house bet.

Fundamentally, despite the OPEC production cuts, inventories are
high on a seasonal basis and gasoline demand in particular remains
on the weak side. Capacity at the well head will expand moderately
this year as well. So, it could be late in this year or 2010 before
supply and demand align more favorably for price recovery.

Long positions should be attentive to how oil behaves as it winds up
the seasonal push around month's end. For a technical chart, click
here.