Geopolitical oil

COMMODITY WATCH

Oil has clearly moved above its key 50-day moving average, and the outlook is bullish.

If there is something that can take oil up or down, it's the geopolitical risk. Is it? The top news now says that, "Crude oil may fall next week after Iran's release of 15 British naval personnel eased concern that shipments from the Persian Gulf will be disrupted; 48 per cent of oil analysts said oil prices will decline, 25 per cent said prices will increase and the rest said they will be unchanged." This means that if geopolitical risk is the biggest driver for oil then there are more reasons why the asset should fall.

Well we have proved this time and again, how weather, Iran or geopolitical risk cannot really predict (accurately and consistently) where prices will go tomorrow, next week, next month or next year. We can try explaining this again.

On March 12, around 10 days before the incident, this column said, "Though we maintain our bullish view on oil, timing the purchase is what matters most. We still need more confirmation to consider the oil fall from August 2006 to January 2007 as the end of the oil bear move. We would give the commodity till the end of March to tell us if it's done with falling."

Oil has clearly moved above a key 50-day moving average. The last time this happened was in July 2003. Oil was above this nondescript rolling line till July 2006.

This means two things, either the geopolitical risk continued to increase over the last four years, the very reason prices never actually fell, or the rolling line understands oil more then analysts do. A simple 'Buy' in July 2003 with a month long confirmation would have kept us away from all noise.

Current prices have made a clear attempt to move above the rolling average. And it seems that apart from all the news, a support here above the average might be all that we need to take oil from 60 to 100.

And as we mentioned last time, the energy asset has a four-year cycle, which bottomed out in 2006. The next cycle should move on till 2010. How geopolitical situations predict oil is a tough call, but reading interpretationsshould be definitely interesting weekend reading.

(Contributed by or-phe-us.com. For the complete report visit business-standard.com)