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Is Oil Back Into the Growth Game?

|Includes: iPath S&P Crude Oil Total Return Index ETN (OIL)

There is a lot of debate on seekingalpha (and somewhere else on the web) whether the oil prices will reach the historically high levels of 2008 (mostly May and June prices, when it reached a peak of $140/barrel. Since those glorious times, the oil prices continued to drop until February 2009. After the beginning of this year, it started again to grow - this time, in a much slower manner.

 

Many analysts argue that the oil prices are linked to the economical status of the US economy, the largest oil burner in the world. In this respect, it is true that the recent economical news have landed better than the previousfigures. The US GDP has decreased in quarter 3 within the economists expectations. The important word here is “decreased”. And the S&P 500 companies have seen a small recovery. Yet, I think we are several months from the economic recovery whcih could turn recession into a growth trend.

And of course, there is a debate of whether oil prices will anticipate these oil price increases or whether it will go down further, before it picks up. Well, as a technical analyst in my free time, I have quite a simple answer for that. Oil is an intensely traded security, like any other financial asset from the markets. And the oil market is quite well developed. So I guess the oil price has already considered all the bets of the market makers and participants. And these bets are that the demand for oil will increase, but not dramatically. As a market with enough information, the oil one has already considered these good news into the prices. And the volumes are relatively low still, which indicates a lot of prudence from the market participants.

 

So I guess than now the ball is in the participants’ feelings. If they expect further recovery of the economy, they will push up the prices. Yet, a lot of data is to come at the table to confirm this – the Christmas sales, the unemployment data for the next months, the GDP evolution. Until then, most of the trading is smart guessing...

 

Note – This material has used an InfoNgen research.