Oil Strength Likely Based on Geopolitical Speculation


Author Larry Berman

Posted: 13 Mar 2012 reposted from etfcm

The fact that oil prices are staying strong and the energy sector continues to perform poorly suggests that few investors believe the current spike is little more than geopolitical speculation. With China slowing in terms of exports, they seem to be buying less US debt with their cash and continuing to build inventories of commodities, and crude oil seems high on their list. This too seems to be adding a premium in the European benchmarks versus the excess inventory issues in the US based on still relatively weak demand.

In Canada, weak natural gas prices are having an impact as well compared to past cycles when WTI was over $100 and natural gas prices were rising at a similar pace. In the coming months, we do see risk of weakness in the euro as  Europe works through their debt challenges, which should provide a headwind to the commodity sectors.

The TSX is likely to remain range bound in a best case scenario unless gold breaks out above $1800, in which case the 13%+ of the TSX in the precious metals sector will have a more meaningful impact.

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