Tuesday, May 5, 2015

Oil: The Real Reason For The Rally

(Drivebycuriosity) - The oil price is on a tear again. Since January the price of Brent Crude, the international type of oil, jumped more than 30%.

The rally looks surprising. "The oil market is well supplied, with producers of the Organization of the Petroleum Exporting Countries pumping almost 2 million bpd more than demand for their oil", writes Reuters today (cnbc). Why does oil get so much more expensive when there is an oversupply on the market?

You can find the explanation in the very same article:
"Investors have moved heavily into oil over the last few weeks as prices have recovered from a slump in January", explains Reuters and continues: "Hedge funds and money managers raised bets on rising Brent prices to another record, data showed on Monday, pushing net long positions to their highest since official exchange records began in 2011" (cnbc).

The oil rally has nothing to do with the fundamentals, she is just caused by speculation on higher prices and so-called momentum players, who are buying oil because the price is rising. It is clear that the oil market has created another bubble.

The experience of the last year has shown that such a price bubble is encouraging oil production & curbing oil demand. Therefore it is just a matter of time when this bubble will burst and the price of oil will collapse again.

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