Oil on a 25mth cyclical bull run? Update 1

On July 11th 2008 oil hit 147 a barrel on the NYMEX exchange. At the time several issues were occurring, inflation was high as far as the US dollar losing value, geopolitical saber rattling between Israel and Iran. Not to forget the US/global recession was about to reach a critical point in 2008.

Upon a possible conflict in the middle east I saw a short term trading range between 141 and 150, please refer to this post World Crisis scenarios for the 21st century – Peak Oil (update 14) Oil heading towards $150.00 (written July 11 2008). Of course we didn't reach 150, but we did reach the all time high 147.

Now it appears that a 2 year cyclical bull run on oil is occurring again, this may reflect shorter price gains on a shorter period of time as the oil price was very over sold when the global recession kicked in later 2008 and early 2009. As discussed in Oil on a 25mth cyclical bull run?, there is an anticipated sell point at $70.00 a barrel. I mentioned that oil could reach $70 late in April 2009 or early June 2009. At this point oil has risen to $68-69, as there is now a trading range between the 60-69. It is quite possible oil will hit $70 early next week ( 15th-19th June 2009), the drop back into it's trading range.

What should be noted about a bull run on oil is that a market is driven on demand and supply issues, therefore the huge sell off that occurred after the highs of $147 in July 2008 was in response to the global economy grinding to a halt; the sell off was severe and probably a little over dramatic. So the speculation argument falls short by assuming that prices were deliberately being driven up, which is a foolish politically driven argument. It should also be noted that no one likes losing money in the market and traders rely on supply statistics and demand issues. Another factor is oil is a hedge against a weak US dollar and since the US goverment doesn't like it's own currency traders look at hedging against an asset losing vale (USD). As we all know oil is rare and getting rarer, More so in an environment when oil production became unprofitable (global recession) and will now struggle to become profitable (high production expenses) in a higher priced oil market with limited supply.

Please refer to graph (click for larger image). Note the On Balance Volume Indicator (OBV), see the volatility from 1st January 2007 (start of bull run) to June 2008 (collapse of oil price). Then it's a straight line down to a bounce on the 1st Januray 2009 (start of new oil bull market).


*morbius glass does not give investment advice. Trade at your own risk