Oil Market

Oil rose to a record $75+ a barrel late last week. That is
close to 86% above its economic value in a balanced environment
with 3 million bd of capacity cushion. Cushion is negligible
reflecting contingency building of larger cover stocks by
processors, market participants seeking inventory profits and
non-oil market speculators.

The recent spurt in the price set off a political hullabaloo
in the US, and has set drivers again thinking of conservation,
as gasoline affordability has deteriorated rapidly. The crude
price has backed off to about $71.50.

In using industry fundamentals, I have not done badly at all on
guessing direction of the crude price, but the upswings have
been stronger than anticipated and the downswings have been weaker.

We are entering a brief seasonally weak period, and crude must
hold $64-65bl to keep the very sharp upturn underway since the
autumn of 2003 intact. The trend band for this May is $81-64bl
using late 2003 as a base and the longer term band is $70-38bl.

At my tender age, I am a conservative player and am effectively
priced out of this market on the long side above $45 a bl.,
just as I am priced out of gold above $450.

For a slightly different chart take on this market, click here.