Commodities | Jul 11 2013
We have seen the price of oil trade substantially higher and against our expectations. We continue to search for reasons as to why the commodity has strengthened so much. To argue that developments in Egypt are the main cause is not justifiable and to say that positive corporate earnings in the US are reducing supply is nonsense. Is it plausible to say that it is a combination of the two that has seen a US20.00 rally maybe, however seeing that the Suez Canal essentially represents an important component of economics for the region and the demand in the US is mainly seasonal the recently rally in our minds is simply overdone given the current news we are dealing with.
It is interesting to note that the recent import data for China shows that imports of the commodity remain soft and echo our sentiment on the economy remaining soft. Crude oil imports in the fist half of the year were 1.4% lower than the same period last year. Although monthly data showed an 2.1% gains in June when compared to last year they were still down 7.4% in May so it is natural to see a bounce. The question will be whether or not the bounce has some teeth. Given the other sets of data we are seeing from China the chances are that demand will remain soft and so to should the price of the oil.
As mentioned last week we feel that there is no supply crisis that warrants the price and that the current fundamentals still suggest that the world is awash with Oil. Whilst economic data continues to track sideways the consumption of the commodity is seasonally adjusted relatively benign.
We have been stopped out of our short and are on the sidelines waiting for signs of a turnaround.
Chart Point – Oil:
The technical picture is perhaps the only supporting item that warrants the price rise. After the break of significant resistance at US100 (WTI) we have only motored higher. On a measured move basis the rally should extend to US107.30. We are looking for sins of a high and then will be active sellers however the timing is not yet right.
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