Oil Price

The oil price has moved in line with the sharp recovery / expansion of global industrial output
since early 2009. As an add on, I would say with reasonable confidence that the oil price has also
benefited from time to time from speculative zeal which has tacked on up to $15 bl. The zippy
bouts have tended to be corrected especially during the spring down time for refineries, when
demand eases. The market is going through one of those periods now, and it could well last into
late Jul. and not be unusual.

looking at an ordinary grid chart, the cyclical advance in oil goes unchallenged as long as the price
stays above the low $90s in Jun. and the mid $90s next month. A period of seasonal strength in pricing
generally starts in late Jul. and can run out through late Oct. Oil Price

Going forward, what strikes me currently is that the global spurt of physical output off the early 2009
recession low is likely not sustainable, especially since the global policies of fiscal and monetary
ease which helped underwrite a strong initial recovery cycle are on the wane. I doubt the strong
positive trajectory of the oil price over the past 2 two years fully discounts the prospect for a
more extended period of moderation of global output expansion and hence slower oil demand
growth. As of now, I would put only a six - nine month window on this idea to see how it works
out. I very much liked the idea of oil at $70 bl. last year as longer term readers will recall, but I
am not at all enthused about oil at $100 bl. + and looking at a more moderate economic
environment.