Oil Rises to Record on Weakening Dollar, Morgan Stanley Outlook - Bloomberg

Was Friday the first time Israel made its intentions towards Iran clear?

Was strong Asian demand for energy resources discovered overnight by brilliant Morgan Stanley (MS) research?

Has the dollar hedge of buying oil suddenly been dreamed up?

Israel has been keeping noise about a military strike very openly since (at least) 2002. One cannot even argue that the radical change in the US intelligence assessment last December that Iran (probably) halted its military nuclear programmes in 2003 has intensified Israel’s rhetoric.

Similarly, it is fairly certain that an analyst at MS conditionally predicting crude at $150/barrel has not based it on information hidden from the rest of the market. What is out there has been evaluated at length by a rich diversity of opinion. One report cannot have more insight.

And then the buck. Having recently checked the charts, since 2002 there appears – may have to look carefully, mind – a profound relationship between debasing that currency and all the commodities it is priced in.

No. What we've got here, Captain, is failure to communicate.

If buyers want to, in essence, double count Israel, Asian demand and the weak dollar when calculating an appropriate price for crude who is to stop it? But take a look at delivery prices to September (crude), April 2009 (heating oil) and May 2009 (Brent).

They are all higher than cash (ie contango). Which is a bullish sign (despite this contango not being particularly pronounced): some buyers at least are so convinced of future price increases that they want to enter the oil storage tank business. Others are buying as the price rise becomes a justification itself – momentum.

The combo of rationalisation and momentum faces a poor historic price appreciation precedent where oil contango is concerned - suggesting that the bull case is best played with Other Peoples Money and a handsome pension pot.

This does not question the the broader argument that fundamental demand is pushing oil up. But it does attack the idea that it accounts for a record spike like this. Contrarians will be watching how the contango moves during the peak US driving season this summer.

UPDATE: Oil shortage a myth, say industry insider Seems doubtful the contangonists read the Independent...

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