Commentary - Revisiting the Oil Story

Oil price hit another record high TODAY. There is a story that goes along with every new high in oil price. This time, it is the International Energy Agency (IEA), the buyers' group, as opposed to producers' group called OPEC, reducing their forecast for non-OPEC oil production. Duh! that's NOT news because the main non-OPEC producer is Russia. And if anyone reads newspaper knows what's going on there especially in the energy sector. Other previously citied reasons for jumps in oil price include (1) Atlantic hurricane season (2) Chinese GDP growth (3) oil inventories (4) refiners capacity (5) hot summer/cold winter in the US northeast, and the list goes on.

The gist of the oil story is NOT the downward revision in the IEA forecast but that in technical-speak there is a major up-trend in oil price. I was not an oil-bull (see my previous blog) but now I am not so sure. I sense something has changed in the oil market. My guess is that this uptrend will continue until fundamental changes occur in the market sentiment. It is kind of scary to think but if this trend continues, oil will hit $100 by mid-2007 (see the chart).

It may not be too late to jump onto the oil bandwagon but the move has to be made opportunitistically. The good news is that Oil Securities Limited recently introduced the first oil ETF (OILB), which will make it very easy for regular investors to speculate on oil prices.