Commodities | Mar 01 2012
This is an interesting question as we feel the recent price rise has only been on the back of the tensions caused by Iran. The world’s number one consumer, the US, has been in recovery mode for sometime as indicated by the positive economic numbers coming from the region. However, the interesting point is that so far this recovery has not yet translated into an actual increase in demand. US inventories continue to increase and demand continues to fall. Keep on eye on Department of Energy Inventory Report Thursday afternoon (GMT). As the price of the commodity goes higher this will further reduce demand and as such prices should retreat. So, if we discount the effects of Iran, and look at current consumption we should not be trading at these levels. US 108 and 110.00 we can suggest is very expensive.
At the moment the bullish call we have had for sometime is being revised and we can suggest that a good pull back is imminent, whilst we play catch up. We continue to support higher prices later on in the year, as per our annual forecast, but at the moment, these levels for oil we feel they are not justified. We stress Iran is still a wildcard and if tensions escalate into some form of military intervention, prices will rally.
On the Brent/WTI spread we expect to come in from US20.00.
Chart Point
The charts are suggesting that US110.00 will be a top for sometime as the rejection was pretty server. Momentum indicators are over-bought and we can suggest that a pullback is on the cards. Expectations are for the market to correct back to US104.00 then US100.00. If you have the courage to go short, stops need to be placed above US110.00. The range for the market is US110.00 on the topside and US100.00 on the downside.
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