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Ignore The Headlines In This Oil Price Rally

Oil

I spend a lot of time these days studying oil. From a trading perspective it is one of the best markets around, or at least for me. Futures provide highly leveraged, readily available, and relatively inexpensive access to a market that responds to the kind of mix between fundamental and technical factors that I am familiar with given my interbank forex background. Those factors, including the two-way movement of volatility, are ever-present, but every now and again oil sustains a move long enough to grab the attention of the mainstream financial media. That is what we are beginning to see now, and long before we are likely to get the usual rush of hyperbolic forecasts and predictions. Some of those will sound immensely scary, so investors should understand the reasons for them and why they should ignore them now, before they flood the airwaves and internet.

As usual when something hits the headlines, most of the commentary is along the lines of “How far can we go?”, whether that is up or down. In this case it is up. Both WTI and Brent crude are trading at multi-year highs, prompting a round of predictions from analysts of both the Wall Street and media varieties that consists of increasingly high forecasts for oil prices. Those that were predicting $80 per barrel for WTI when we broke $60 at the end of last year are now saying $100 is reachable, with many more behind them looking at $90.

(Click to enlarge)

Markets are unpredictable by nature,…

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