These are the famous words of Geologist Kenneth Deffeyes voiced in FEB 2006. Though the expert reiterated later saying that the words he said were a bit harsh, the quote anyway found its way to the top list of 2007 quotes. Books and cover stories highlight a mass psychology extreme. We call it a cover story indicator. Economist came up with a cover story on Dollar doldrums four times since 2004. Every time the cover page story hit the stands, dollar strengthened by 10-15%. Such inverse behavior of markets unlike what a reputed respected magazine suggests highlights how mass psychology works. If more than a million readers of Economist know that dollar is going down, most likely we will have a surprise, as a million people can not make a killing together speculating on the dollar. Same way, if the OIL expert writes a book about OIL crisis, most probably we are near an intermediate top. This is what happened, as OIL is much below the top and now other experts pen out stories about OIL.
Oil prices rest near $ 60 now. The analysts still sight continuing warm winter expectations and delayed deliveries. But how can delayed delivery push prices down? If OIL does not reach you in time, the demand should increase and take prices up. Maybe delayed delivery leads to inventory build up, which pushes prices down. This was for ‘OIL Bears’. The analysts have even conjured up new year forecasts for ‘OIL bulls’. They want to keep everybody happy. Despite warm winters, fog and delayed deliveries, OPEC is trying to reduce output to stabilize the market. Overall the outlook for the year ahead is mixed.
If markets are moving sideways for the last one month, it’s easy to sight neutral reasons why OIL could go up and why OIL could go down and in conclusion how buying pressures match selling pressures to keep OIL where it is now, sideways. We sighted an extremity of OIL at $78. Now we see another consolidation zone, concluding in another leg up. The very fact that warm winter talk is ubiquitous is the very reason, it may fail to work. We still believe OIL remains in an OIL primary trend down to sideways, but short and intermediate term suggests a move up in Jan 07 before any real dip happens.
We gave MCX OIL buy near 2700 levels. MCX OIL moved up to 2900. Technically speaking the retracement up still looks wanting and shallow. Our target level still stands firm near 3000 levels. We will make an early review next year, if international OIL prices stay below $60. Any by the way, we partially agree with Deffeyes about a crisis, though we are not sure of the stone age. And even if we do hit stone age, we see it as a life time buy opportunity.