Peak Oil Passnotes: Lull What Lull?
By Edward Tapamor
01 Sep 2006 at 01:38 PM EDT
PARIS (ResourceInvestor.com) -- For the last two years we have seen prices hit their highs for the year around now. Of course there are a variety of reasons. Last year being a special one caused by the double hurricane hit, with Katrina's devastation of New Orleans having been commemorated this week.
It was Katrina that took 2005's nervous, edgy market over the $70 threshold for the first time ever, to $70.85 in fact. This year we have seen a relatively benign hurricane season - so far at least - yet just 12 months on from the ravages of the perfect storm we are surprised when oil falls back below $70, even if it is just for a day here or there. It should be another lesson in how far the price of oil has come.
Because sometimes it is too easy to look at the latest moves, you can lose sight of the bigger picture when you follow the minutiae so closely. After all the Brent crude marker, as one example, has lost over 10% of its value since its August 7th records of $78.64. But as we have gone over many times, this is not just due to the general factors that are so often trumpeted. Yes the Lebanese conflict has calmed, relatively at least. Yes it does not appear that the USA wants to attack Iran, or even knows where to attack if it did want to.
We are also all guilty - this commentator included - of placing an enormous amount of weight on weekly statistics from the U.S., which at their very best, are only estimations of what is actually happening. It becomes a self-fulfilling prophecy. If you give these statistics so much weight, then they will become more important, which means you have to give them weight. And so on.
Twice this year already, in February and June, we have seen the market pull back after surging ahead. At the start of the year the flood of money coming back into the market - after having been claimed as profit to make enormous bonuses for a few thousand people around the world - propelled crude back into a more realistic price range around the mid-$60 range. Then the price fell back again.
In April once again we saw a new set of highs, pushed higher by intense fear and uncertainty over Iran. The Nymex broke $75 for the first time and we were wondering how long it would be before the next resistance level, $80-$84 would be breached. It was not. Instead by June the Nymex spot market was sitting around $68. Almost exactly where it is now, just ever so slightly lower.
On each occasion those movements were not so much propelled by the idea that the original fears - Iran, Iraq, Nigeria et al - that created them had gone, but by a desire to take that profit back. Greed. All the basic factors that propelled the market remained in place. So here were are at the start of September, one year on from the then-record prices without the huge momentum we had at the start of August.
In many ways what we are seeing is the setting of an intermediary floor price, let us call it $70. The price we hit in Katrina's wake. We have already written about the fact that by Christmas time, the desire by traders and financial institutions to screw every last cent out of the price gains over 2006, may pull oil back down to as low as $61. To set the real floor price just as the last two years have seen. But right now we are seeing one of those lulls, the third of the year, which can be illustrative of the ranges in which traders - including Resource Investor's readers - can make money.
We are for example, now ending the American driving season - except for you people without kids who want to go on holiday on the cheap, yes you - and the focus of attention is going to start to turn to heating oils once again. Weather forecasts about cold snaps, or warm winters, worries over refining capacity, what sort of crude can safely be used in refineries. The basic kind of stuff. So we are in a slight quiet time. So it seems anyway.
But remember Rita? Remember cold winters? Remember Iran? Remember the Movement for the Emancipation of the Niger Delta? Remember demand? Still sitting there, just like last year. A $70 floor price is a lull? People have short memories.
