PARIS (ResourceInvestor.com) -- Some people are calling this the most boring crude oil market for ten years. Since the decline in August and September the market has remained fixed solid. Stuck between $55 and $61. It is easy to see why, as we have gone over these problems many times.
Despite many instances of scaremongering, and many genuine problems, nothing has convinced the herd to move off from its current watering hole. Each news event fails to stir the loins of the market makers. Sure this is a good thing for small businesses, consumers and those who wish to plan fuel consumption long term. But they are not important in the oil market. What’s important is profits.
In Iraq, 3700 people died last month. That is the same total as the British conflict in partitioned Ireland, but in that case it took 35 years to kill that many people. The fact that Iraq swims "on a sea of oil" (Paul Wolfowitz) does not matter. The market would not budge.
In Nigeria, we saw the first expatriate worker killed in some months, a British employee of Italian Eni [NYSE:E]. Most likely he was killed by boys in uniform, otherwise known as the Nigerian army, in another botched rescue attempt. A few months back they also shot dead a Nigerian worker from Royal Dutch Shell [NYSE:RDS-B; LSE:RDSB] as he was being released. The market would not budge.
However, we also saw some far better than expected figures coming out of the United States. Where analysts had expected something in the region of a 900,000 barrel draw down in gasoline we saw a build up of 1.4 million barrels. The Energy Information Administration (EIA) in America said the forecast was eight times what it expected. So much for analysts.
This did provoke a fall in the market, testing some six month lows. But despite this seeming reassurance it could not break down below the $55 floor we have seen since close to this time last year. The market would not budge.
French Total [NYSE:TOT] are also about to start production form their huge new field in Angola called Dalia, slightly later than predicted but still on course to be producing around 200,000 barrels a day within a few months. The market would not budge. You get the drift right?
It seems at the moment that bearish data pushed the market downwards but only to $55. On the other hand bullish data can push the market up, but only to $61. But the tensions are rising. Internally within the industry all anyone is speaking of is which way the breakout will go.
But for the first time in a long time, the key may lie in the hands of the eleven nations of OPEC. It is they who can push prices and they will most likely push them upwards if they stay on the same course as they are now.
Because OPEC has of course claimed that they were staging a cut in production of 1.2 million barrels a day, a significant chunk. Well, it would be if anyone believed this was actually what was happening. In fact it appears that OPEC have done nothing of the sort instead they very well may have increased their output slightly to feed the stockpiles in Asia, the U.S. and Europe for winter.
The problem for the bears may come when OPEC tire of being range-bound and decide to genuinely cut back production, possibly in the first quarter of next year. If they cut back it may well coincide with a new mood in the market herd.
Those who have shorted the market since the $78 highs in July and August have already made a huge amount of money. Possibly enough even to sate their own greed. Thus it may be important to hold this range until the New Year in order to get the bonuses they so richly do not deserve.
With that in mind come 2007 there will be a whole new ball game to play for. Just like last winter when we saw a big breakout in January 2006, we could well see the same thing this coming January as well. To break out to the downside given the fundamentals would be hard. We still have good consumption, wars, shut-ins and China.
Our prediction of $61 on Christmas Day may yet turn out to be correct, well there has to be a first time. Now that is what we call interesting.
