“It’s not a question of when we’ll hit US$100 but how quickly,” Nauman Barakat tells Bloomberg. Barakat, the senior vice president of global energy futures at Macquarie Futures USA Inc. was not talking about Macquarie Bank’s share price. He was talking about oil. “There are no bearish factors in the market right now.”
Well that’s bad news. When everyone is on one side of the trade…it’s pretty crowded. For the last three weeks we’ve had a completely irrational suspicion that the oil price is due for a massive correction. Our suspicion has no basis in any empirical observation. It’s just this feeling we sometimes get, like an itch between the shoulder blades.
Oil has plenty going for it. There’s a bullish supply/demand dynamic. There is the Energy Watch report that came out earlier this week (see the chart we published here). It claims the world is already at Peak Oil production. You’d think that would be bullish too.
Still, we can think of one reason the oil price would massively correct: a stock market crash followed by a nice juicy global recession. Of course we are not hoping this happens. But even rip-snorting oil bulls in full cry ought to remember that the laws of supply and demand govern all and see all.
If energy gets too expensive, the economy will cool off. It’s as simple as that. You can’t have double digit growth in China for five years running, sky-high geopolitical tensions in the Middle East, and Peak Oil. Something will have to give. We reckon it will be the oil price. However, we have no idea when that could happen.
The Daily Reckoning Australia