Here it is – the first trading day of 2010. And we’re already seeing what will be one of the most important (and lucrative) trends for this year. Oil prices are pushing past $81 a barrel.
$80 has been an important resistance level for oil prices as traders continue to believe that high inventories and weak demand don’t warrant higher prices. In the words of Olivier Jakob of Switzerland’s oil analysis firm Petromatrix, "We do not think that the fundamental picture and the price structure will allow for the current crude oil prices to be sustained in 2010."
I beg to differ. Oil’s current price is not being driven solely by demand. If it were, prices would be lower. There is an "expectation premium" built into oil prices. Demand will return. And there is a limit on production capacity of approximately 94 million barrels a day. The days of $147 a barrel are not as far off as some may think.
*****Right now, Russia and Belarus are squabbling over oil transport prices as oil is shipped across Belarus to end markets like Germany and Poland. As you know, Russia had threatened to cut off its oil supply through Belarus.
This happened before, in 2007. And when the situation was resolved, oil prices dropped 7%. Now, can you imagine what oil prices would do if Canada threatened to cut off supply to the U.S.? I can tell you, there would be more than a 7% move in oil prices.
Oil analysts are far too focused on the U.S. as the main driver for oil demand. Sure, the U.S. uses the most, but it is demand from emerging markets like China and India that threaten to push demand to the 94 million barrel brink of global supply. And to virtually ignore Russia’s increasingly aggressive attitude toward its oil is unwise.
Russia supplies 13% of the world’s oil. And given the state of Russia’s economy and its near total reliance on oil revenue, it’s reasonable to expect Russia to do whatever it takes to keep oil prices high.
In my opinion, oil is a lock to trade above $100 a barrel in 2010. And it may already be on its way…
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