div align=”justify”Back in December, in a href=”http://www.deadcatsbouncing.com/articles/20081209″span style=”color:#990000;”Oil: From Bubble to Bust…and Back Again?/span/aem /emI again took a contrarian stance on oil, having turned ultra bearish last Spring as the speculative bubble peaked, stating that: ‘emA blind monkey throwing darts would beat the average investment bank oil analyst, whether forecasting weekly inventory levels or the future oil price. At the peak of the historic investment bubble in oil futures back in July, they were falling over themselves to predict $170-200 oil in 2009. Now it’s $25.’/em /divdiv align=”justify”Despite endless bearish news on the global economy, that call has come good, initially for non-WTI grades like Brent given the specific Cushing storage issue, but in recent weeks for Nymex crude as well, now up 9% YTD. As can be seen in the chart below, thanks to OPEC discipline (helped by a steep contango structure which makes keeping oil in the ground rational) crude is now threatening to break-out of its recent trading range. emstrongAs with many commodities right now, the market is struggling to reconcile the reality of short term demand destruction (albeit US gasoline demand seems to be rebounding) with the prospect of medium-term supply destruction as key development projects are postponed or cancelled. /strong/em/divdiv align=”justify”We also have strategic stockpiling of resources from copper to oil, particularly by China, to add to the mix. China now holds the maximum 100m barrels in its national reserve, although storage capacity will grow to 281m barrels by 2011. Although marginal production costs have declined a few dollars in recent months, if prices stabilize at say $35 only two international oil companies, ExxonMobil and Total, would be able to finance current investment programmes out of their cash flow, according to Bernstein Research. For the others, raising capital to finance investment would be difficult in the current risk-averse climate. In other words, prices much below the current range are economically unsustainable for anything but the very short-term. So after a relatively strong move versus other assets so far in 2009, can oil sustain this momentum, or does natural gas, down 33% YTD, offer better prospects? The relative economic prospects of the US and China are key./divdiv align=”justify”strongspan style=”font-family:trebuchet ms;color:#3366ff;”emThis article continues at /em/span/stronga href=”http://www.deadcatsbouncing.com/”strongspan style=”font-family:trebuchet ms;color:#3366ff;”emwww.deadcatsbouncing.com/em/span/strong/astrongspan style=”font-family:trebuchet ms;color:#3366ff;”em. /em/span/strong/divbr /div align=”justify”/divbr /div align=”justify”/divdiv class=”blogger-post-footer”img width=’1′ height=’1′ src=’http://res1.blogblog.com/tracker/1897020887579135393-5680413633874816396?l=deadcatsbouncing.blogspot.com’//divdiv class=”feedflare”
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Last 5 posts by Sean Maher

• Who was Smuggling $134bn in US Bonds into Switzerland? - June 12th, 2009
• Geithner Toxic Asset Plan Collapses: Will US Banks Follow? - June 10th, 2009
• US Unemployment hits 9.4%...that's Bullish, Right? - June 5th, 2009
• Oil Price Surge: Deja Vu? - June 3rd, 2009
• China Hedges Against US Inflation... - May 28th, 2009