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  • Oil Going Off the Boil [View article]
    I don't think oil has been on a "strange course" at all. The price of oil has tracked a very logical curve.

    Since oil has become an investment asset class about 8 years ago, oil price has been dominated by speculation. The price went to a ridiculously low price of $35 early last year because hedge funds were forced to dump positions in everything to raise cash to survive. Everyone else was just waiting for the end of that liquidation - "don't fight the tape".

    Once everyone realized that there was not going to be another Great Depression, then many dived back into oil. Oil went straight to $70 because many people "know" (conventional wisdom) that oil has to "go to the moon" when the world economy fully recovers. I believe this is bad conventional wisdom.

    It's been oscillating around $70 for months because it has reached equilibrium between the reality of supply and demand ($70 is too high now for supply and demand) and speculation of much higher future oil prices.

    The reason, IMHO, there has been so much volatility around $70 is because of there is a very strong game of "tug of war" going on between fundamentals (pushing price down) and speculators (pushing price up).
    Sep 26 17:19 pm |Rating: +4 0 |Link to Comment
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