Placing bets on oil must be the toughest thing out there in the betting world. Not so long ago, were the likes of JP Morgan, Deutsche Bank, Citi, EIA, and any other possible experts on either forecasting or energy had almost read the final script for a doomed future for oil prices. They must all be eating humble pies now, as they are the ones joining the chorus for a strong oil recovery, and prices in $70s a barrel pretty soon.
Rebalancing supply and demand, that seemed ever so distant a few months ago, has now non only been achieved, but the market is gradually entering the demand driven phase. It was just yesterday, when the doomsayers had officially informed the world of oil entering the bear market for a long haul. The same 'experts' are now saying oil may not see $40 a barrel again. But if history is any guide, oil will surely see all levels again.
Why such a swift shift though? Firstly, oil continues to be dominated by whims and speculation, despite all the sophisticated tools and data the market may have. Secondly, Opec members have stuck to the task religiously, adhering to the commitments to the fullest. Their compliance to the agreed production freeze is a staggering 120 percent. That, surely, was not seen coming by many.
Demand projections have also changed for the better, as the IMF has recently projected global growth to increase by 0.1 percent from its earlier forecast. More so, China and India are back on the radar, with strong industrial growth projections. Global oil inventories have dipped sharply, after a few natural disasters. It is all coming in sync for oil prices to go north and perhaps stay there, for some time.
But all of it could change in a jiffy, as has been witnessed time and again. Case in point is the recent tension in Iraq, which has singlehandedly jacked up prices by 5 percent in a week. The fact is that geopolitical realities and Opec's compliance have become the strongest variable in oil price movements. It may all look nice and easy for now, but could all change, should either variable face a turn for the worse. And we have all seen it before. So don't bet your house on the projections yet. Ride the rally whilst you could.
