PARIS () -- Oil markets have been the centre of attention in the news since we last wrote this column. We did not anticipate the fall back to around $124 per barrel, although we did correctly say we found it unlikely the market could drop any further.
But then, as we did say, the market then undertook an amazing rebound, back to within touching distance of its $139 record price. The two day $16 leap - the biggest ever recorded - was buoyed by little more than speculative thought from banks anticipating $150 per barrel and some bullish tones from Israel. In other words, nothing very special.
The result of the consistently high price - and what appears to be the new floor price at $124 per barrel - has spurred political action. A meeting has been called in Saudi Arabia on June 22nd for producers and consumers to meet. Everyone is scrambling to get out there in time to try and have their say.
Worryingly, everyone is trying to blame someone other than themselves. OPEC, China, those mysterious "speculators" have all come in line for attack. Australia and the United Kingdom's Prime Ministers have both attacked OPEC. China has been blamed for daring to try and have a modern economy, don't those guys in Beijing realise they can't have one? And in turn the politicians of the Middle East have blamed the people in the market for the price. What a terrible load of charlatans they all are.
OPEC is not to blame. It has little more spare capacity to offer, maybe 1.5 million barrels per day, but that is it. Also the spare capacity it has to offer is the kind of oil not many refiners actually want. We went through the process of OPEC turning on all the taps it had three years back. You may notice it did nothing to halt the price rise.
China has been blamed because it subsidises fuel prices to consumers. BP chief executive officer Tony Hayward said this week that those subsidies distort the market by boosting demand. They do, but China also rations fuel, rations power, shutting down entire cities industrial output to stop its economy overheating. If it were simply to open up its economy to market forces it would suck up even more oil and send prices - and global inflation - through the roof.
OPEC in turn has blamed speculators. As if somehow the market exists in peaceful times without speculation. Of course what they fail to mention is the physical oil market - as opposed to the paper market - is buying $130 oil. Refiners are paying for $130 oil, they are refining it, selling it and consumers are buying it.
The June 22 meeting may soften fears, but it could also ignite huge arguments. More likely than not it will simply do nothing. Saudi Arabia may try and bump up its production but once again, a drop in price only allows the Chinese and Indian economies the opportunity to buy more oil.
We are also faced with the return to action of BP's Texas City refinery sometime before the end of July. This will mean demand for another 200,000 barrels per day and the continuing addition of more refining capacity across China - it added 1.4 million barrels per day of capacity last year - only serves to suck up more and more oil.
So we see little sign of oil beating a path back below $124 unless the Saudi meeting really is all peace and love. Instead tensions could push crude up to touch $139 so look for crude moving up past $135.51 and $137.02. On the downside you can retrace the steps to $124 via $132.19, $128.412 and $125.36. If we really do see a continued fall then $122.31 would be a key figure, with the next stop being as low as $112.44.
But we expect oil to trade between $132 and $139 over the next seven days, as long as there is no bad news on the upside. Or on the downside that someone does not take the blame, admit it was their fault and say sorry. We are not holding our breath.
