PARIS () -- The week has passed relatively uneventfully apart from some tightening fundamentals. As yet no one has dropped any explosives on Iran, peace is just about being maintained in Lebanon and although Al-Qaida have said they intend to target oil installations they appear to be about as effective an armed group as the U.S. Army. Not very.
Note to Al-Qaida, when you announce your plans, like a warped boys club outing, you look even lamer than you already appear.
Instead, we have some much more straightforward factors influencing what will happen to the market. But with one interesting proviso that the technical analysts do not agree.
Firstly, the weather across the northern Americas and Europe has remained fairly cold to absolutely freezing. Huge snowfalls in the northern U.S. have gripped the media agenda and powered the markets well known herd mentality. When five feet of snow fall in one night you can be sure the market will rise, even if it is a relatively isolated area. After all CNN cannot be wrong.
Then we had interesting data out of China, in that consumption grew by 9.3% over the last year. Now, we have always been sceptical of Chinese figures - as we are of many oil statistics - both in terms of the obvious openness of the figures to manipulation, but also the sheer size of China makes reliable data collection a very difficult feat.
Nevertheless whilst the 9.3% figure may be a few percentage points out, one way or the other, it still seems that China is determined to grow. There seems little doubt that Chinese expansion is constantly catching up with itself. There is a constant market for everything that China makes and the demand of the global economy to carry on circulating finance means that the desire for cheap Chinese goods does not dry up. Not yet anyway. This in turn means China will go on expanding until the western economies trip up, and one day they will.
With this in mind it is hard to see how China can really get ahead of itself in terms of energy in the foreseeable future. Despite a welter of new power stations, wind farms, giant hydro-electric projects and the rest China will continue to be a net importer of hydrocarbons as its own internal supplies dwindle.
Inventories are also in a tightening mode, in the last month or so inventories in the U.S. fell by 32.7 million barrels year on year. Combine this with the level of U.S. demand which simply will not stop going up, it has reached 21.82 million barrels a day with all the other inventory levels, for products such as gasoline, also levelling off. The U.S. really is addicted to hydrocarbons, even people who have very little in the U.S. are still using - and often wasting - enormous levels of energy compared to the rest of the world.
Whilst China needs to import energy to keep getting fatter, the fat U.S. needs to keep importing and using far greater quantities of energy just to keep its dependent population alive. This columnist does not quite have the words to describe that kind of pattern. We all know the U.S. uses lots of energy in a very profligate fashion, but it has gone beyond that. American life is so fired up by switches and screens that words like addiction and dependence do not do the subject justice.
Rather like an addict to prescription drugs, the withdrawal to the problem is worse than maintaining the problem. It is beyond addiction, it is clinical hard wiring.
With all this in mind we should already be seeing prices hiking up over $60 per barrel. But we are not. Instead the powerful technical lobby simply cannot figure out what is happening. Hey join the club.
Technical analysis says that, because oil has already broken down past $50 per barrel this year that is has broken out of its bull market. I am inclined to agree. But then technical analysis only works if you first believe it, and then secondly, set your software to buy and sell around it.
We are going to see resistance at around $60 to $60.80. If it breaks up past those figures chuck your technical software in the bin, buy some pins and stick them in a price graph. If the snow melts however, if the U.S. is a little quieter on Iran. Then it's time get out. But one thing seems likely, it is going to get interesting, and soon.
