History doesn’t repeat, but it sometimes rhymes. That was the insight of the famed American writer, Mark Twain.
2 weeks ago, this led the blog to highlight the similarities between the geo-political concerns then developing in Egypt, and the Israel/Iran stand-off which had marked the oil price peak in June 2008.
We still cannot be sure what will happen next, but it currently appears that the blog’s “most likely outcome of the army brokering an orderly transition” will take place. And the past 2 weeks have given us important clues about the likely future direction of oil prices:
• Speculators pushed Brent prices to $100/bbl, but failed to move them higher
• The WTI price hardly moved, and is now back to 1 December levels
• OPEC compliance with its quotas has fallen to just 48%
• Iraq (outside the quotas) raised output by 250kbbls in January
This suggests that prices are unlikely to increase much in coming weeks, if geo-political tensions continue to subside. The bulls have had their chance to rush prices higher, just as they did with Iran. Both times, they appear to have failed.
Instead, the bulls may now begin to find themselves under pressure. Gasoline prices are already at record levels in China. Equally, the euro’s weakness means, as the chart shows, that today’s €75/bbl price is now very close to the Q2 2008 peak.