PARIS (ResourceInvestor.com) -- The oil market is great. No matter how many people are looking at it, no matter how many staff patrol the prices, it still strolls off into the distance and does its own thing. Just when everyone was talking about $35 per barrel – a claim Resource Investor found a bit hard to stomach – we see prices rebound this week to $58.86.
That means that crude has now gotten back around 70% of its recent losses, but any thoughts of a surge back to $78 are way short of the mark. We will run through the bullish and bearish factors affecting the markets as it starts to settle into some kind of pattern in 2007.
First come the bearish factors, which include increased production coming onstream. The coming year will see a lot of new capacity reaching the market, countries like Angola, new members of OPEC, should reach 2 million barrels per day by the end of the year.
New output will also come from Nigeria, despite al the efforts of the varied groups. However what must be noted in Nigeria is the main group the Movement for the Emancipation of the Niger Delta (Mend) has basically collapsed. Not that you would understand this if you read the mass media.
Mend have been bought off, as we have mentioned before. Their commanders have often fluctuated between oil theft and more ideological purposes, but now with presidential elections approaching in April local political leaders have managed to bribe them in order to corner such a lucrative market.
Although events such as the release of the leader of the bandit group The Outlaws – where 50 armed men stormed a local jail - will continue to take place, as will hostage taking, the violence in the Niger Delta is likely to be less focussed. That means production shut in will remain shut in, but with most of the new projects like Erha and Bonga coming offshore, it limits the amount of damage these chaps can do.
More dangerous is an escalation of the killings, which will lead to a strike by the Nigerian trade unions. After all, would you like to work there?
Even Russia is putting on extra capacity, hitting 9.85 million barrels per day, up some 450,000 barrels per day year on year, its highest output since the Soviet Union. Of course this is coming at a time when oil demand is relatively tame, it is growing but it is not out of control.
The bullish factors seem potentially limited. The cold weather that has moved into the United States, prompting the rise from $50 per barrel, could quite easily evaporate. In Europe demand is low, there have even been forest fires in parts of Spain and France in January as climate change acts out its bizarre patterns. If the weather in the United States were to move warmer, expect oil to drop back fast.
One other underlying move that pushes prices higher is the United States government and Iran. In a flagrant attempt to distract from the carnage it has caused in Iraq - along with its previous allies the religious Arab right wing - Iran - is now being squeezed by the current administration.
Despite a total lack of evidence over nuclear weapon ambitions, despite a total lack of evidence over Iranian involvement in the violence in Iraq the White House is becoming increasingly belligerent. This, at a time when oil companies such as Respol, Total, OMV and Shell are moving into the country. The timing is fairly obvious - these are not American companies.
The war in Iraq has been a huge success for the elite in the United States, it is they who will eventually work with the Iraqi oil reserves and make the profits they so richly deserve. The same process will be undertaken with Iran, the first step being economic degradation, a move the United States will be successful in accomplishing.
Then 10 years down the line, during the next Republican administration, the full Iraqification of Iran can begin. Or should that be the Central Americanisation of Iran. Simply destroy its infrastructure, reduce the population to desperation and they will pose you no threat, and the right people will eventually get access to the energy reserves.
But in the very short term, a bombing strike notwithstanding, Iran will totter along and oil will stick in a range of $50 - $55 with more appetite to the downside than the upside. Watch for oil breaking up past $59 or down past $49.80, and keep your tin hat on.
