Which Way is the Wind Blowing Today?
Today, a story from CNN caught my eye:
“Three dollar gasoline in this market is unavoidable,” said Stephen Schork, publisher of the industry newsletter the Schork Report. “At this rate, we’re going to see $4 a gallon.”
Norrish said it was fundamentals, not speculative investment money, driving oil prices – strong demand, falling inventories, no production increases from OPEC.
“The underlying market balance will continue to tighten, and if the geopolitical situation worsens we’ll get to $100 very quickly,” he said.
Barakat said there are now more traders betting oil will rise to $100 than there were betting it would cross $90 back when crude was still in the $80s.
And Schork noted the sheer amount of oil contracts trading, and the fact that OPEC tried to cool prices back in September with a production increase, did nothing but send prices higher.
“There’s a tremendous amount of bull energy in this market,” he said. ‘There’s no reason we can’t get to $100.”
The funny thing is that last month, they ran this one:
“If $80 a barrel holds, then it will trickle down to the pump,” said Sal Gilbertie, an energy trader at Fimat in New York. “But I have no faith in it staying up there.”
Gilbertie said the end of hurricane season should bring oil prices down, and also agreed that, with the end of summer driving season, the demand just isn’t there to push gasoline processing much higher.
“We have no specific, identifiable shortages,” he said. “The product is out there.”
One wonders if next month they will tell us that $60 oil is inevitable. I guess Yogi Berra was right: “It’s tough to make predictions, especially about the future.”
It is just amazing to me that market sentiment is so fickle. The fundamentals didn’t change that much in the past month. But it seems like once a critical mass of talking heads repeats a point, it becomes conventional wisdom. A month ago, oil was overpriced at $80. Today, $100 is all but certain. Again, this is why I invest based on the fundamentals, and ignore this short-term whiplash.