| « Here today (sort of), gone tomorrow (probably)? | A Brave New World » |
When will the markets come to the realization that the economy is recovering but not as fast as they are hoping
After the euphoria of the Canadian gold medals and hockey success at the Vancouver Olympics, it appears that last week’s positive momentum has cascaded into the booming commodity markets. Yes, there seems to be no logic to support the ballooning energy prices. Maybe the champagne corks are popping because politicians and economists continue to make grand announcements the good times are back luring investors and speculators into the markets?
Last Thursday, crude closed at $80.21U.S./barrel with market expectations for rising demand. There are predications the markets will test the high of $85 reached last November. At these price levels we don’t expect OPEC will announce any production output changes at their meeting on St. Patrick’s Day. The supply/demand fundamentals are being completely ignored. We believe oil prices are drastically over inflated and should be trading in around $70/barrel. The current market exuberance is being supported by exaggerated CONFIDENCE that the global economy is now in full recovery mode at an inflation free pace thanks to central bank interventions.
There is concern that continuing demand in China and India will reduce global oil inventories. Supporting this sentiment may be the recent data on a shallow contraction in U.S. job losses in February, which is influencing investors into thinking the economy, is bottoming out of the unemployment situation and possibly beginning a cycle of adding jobs.
The traders and investors are turning a blind eye to the excess supply and fragile demand fundamentals and only seem to be focusing on the positive indicators to support their irrational bull market logic. With the sluggish economies in North America and Europe, in reality we expect China will be the future driving force to higher energy prices.
By: Roger McKnight, Senior Petroleum Advisor
Find out why in this week’s Energy Report. Also, what’s in store for natural gas and electricity as we head into spring? Sign up by sending your email to: info@en-pro.com.