Oil hits $80/bbl

Oil rig right.jpgThe blog should award itself a pat on the back, now its May forecast of $80/bbl crude has come true. And it is pleased to maintain its 100% record in forecasting the direction and level of oil prices.

But it still regrets the lack of substance behind the so-called ‘correlation trade’ between oil, the US$ and the S&P 500. Like all good trading ideas, this could have some truth in it: if oil was fundamentally strong, then the US$ should weaken (due to the extras costs of oil imports) and companies in the S&P 500 might expect a return to growth.

Unfortunately, as they say in Texas, “this dog don’t hunt”. Crude oil stocks have been at record highs for months, due to lack of demand. And there is no indication that western companies expect a quick V-shaped recovery in top-line revenue growth. Moreover, $80/bbl oil puts great pressure on a fragile world economy, and will cause demand destruction.

Equally, as Olivier Jakob of Petromatrix notes, “this is a very technical market, and technical markets fall as fast as they rise”. Barring any geopolitical surprises, a return towards $40/bbl seems very possible.

Oil prices will be one of the key issues discussed in the blog’s free Budget Outlook webinar next week (details yesterday). If you would like to register, please email simon.robinson@icis.com or myself, with Chemicals and the Economy Group in the subject line.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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