oil soars 11% ahead of opec meeting, page-3

Excited about oil
By Rudi Filapek-Vandyck
March 13, 2009


PORTFOLIO POINT: Crude oil prices are stirring off their lows, prompting speculation that it could lead price rises in a range of commodities.
It has taken a long, long time – and maybe that is an understatement – but things have finally started to look more upbeat for the price of crude oil which hit $US47 last night up from recent lows of less than $US40 a barrel. Not only has the West Texan Intermediate (WTI) April futures contract managed to move ahead, instead of falling back below $US40 after the expiry of the March contract, but inventories in the US are no longer rising.

It has to be said, however, that global inventories remain at levels not seen for at least 10 years and this will automatically keep a lid on immediate future price potential. But only a blind man would not have picked up that overall sentiment in and around the oil market has improved markedly this month.

Traders and oil experts have been talking about a price range of $US35–55 a barrel for a while now, but thus far only the lower half of the range has shown itself. This past week WTI futures contracts for delivery in April have continuously tried to break above technical resistance in the $US46–47 region. This in itself has fuelled expectations that crude oil prices can finally move to the upper half of that trading range.

Crude oil is still priced much closer to its bottom ($US32) than to its peak ($US147), but were crude oil to test technical resistance at $US50 a barrel this would represent upside of more than 10% from its current mid-$US40s price – more than 20% if crude oil would manage to move to the upper end of said trading range.

It's not difficult to see how and why this has part of the global investment community genuinely excited. Oil on the rise and possibly heading for a break-out raises some interesting questions. Could it be that crude oil is leading the wider range of commodities? Or could it be that crude oil is simply leading equity markets as a whole?

Technical chartists have been pointing out that it's not just crude oil that is starting to look very promising on the charts; the same goes for gold and silver, copper and lead, and many other commodities too (even softs such as sugar!).

Could it be that the long anticipated equities rally will be triggered by a widespread surge across the commodities spectrum?

If so, then the answer must surely be found in China, because economic data elsewhere, including in Australia, remain simply awful. Could China be the key that leads us to the next rally for commodities?

The answer is probably "yes". Regardless of whether one believes the Chinese government's official target of 8% GDP growth will be achieved this year, early signals of economic recovery coming from that country have convinced part of the global investment community that China will probably come out of this downturn the best and first