Commodities | Jul 19 2007
By Chris Shaw
With Brent crude trading at almost US$78 per barrel the oil price is within sight of its highs of last year, but as Commonwealth Bank commodity strategist Tobin Gorey points out conditions now are very different to conditions last year so a direct comparison is not particularly valid.
He notes last year’s high was based on concerns over the potential for another Hurricane Katrina type event in the US and a UN Security Council meeting discussing Iran and its nuclear aspirations.
In other words it was event risk that drove prices higher last year, while this year Gorey points out the increase in the oil price is based on fundamentals as demand is strong and supply is struggling to keep up.
The other difference is while last year there was nothing that could be done about the oil price this year there is a way to combat the tight market fundamentals via an increase in OPEC production levels, an option the cartel didn’t have at its disposal this time last year.
This means while there was little choice but to be long of oil this time last year when prices pushed up towards US$80 per barrel the decision is not as clear cut this year, as with OPEC production the swing factor there remains the chance for the upward squeeze in prices to be weakened by an increase in output in coming months.