The Unfinished Oil Story
Two positive and one negative factor for the oil price: demand fundamentals are a long-term positive to support oil price and will remain so in a long time to come ; Another equally important factor is that there are a lot of money supplies around the world (except in the US) that cannot keep the eye off the oil market. One negative factor that has chilled the oil market recently is the concern that weakening economies in many parts of the world will reduce oil demand.
On balance, I still see that oil is one of very few positive investment themes with positive underlying fundamentals to support the upward price trend. So far, the concern that oil demand is waning has not been reflected in the weekly US oil inventory report. What has possibly contributed to the recent drop of oil price may be related to the bounce of US dollar that in my view is just a short term reprise of a deep descend. There are neihter monetary policies nor fundamental changes in the US that give sustainable power to the US dollar.
The tehnical chart below shows that it is far too early to conclude the end of oil rally and it wouldn’t do any good to real economy if the price can’t break down the long term blue trendline and drop further.
Although commodities have been in correction for the past few weeks, they have not reached the price level that is low enough to put a much needed relief on the real economy worldwide.
Chart: Light Crude Oil –Continous Contract
