Oil: A Port in the Storm for Much Longer?

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Just back from Vienna where "es regnet Katzen und Hunde" for the entire 36 hours I was there. It made London seem positively balmy by comparison.

That said, even the downpours across the Danube failed to wipe the smile off the faces of OPEC members still enjoying $100 per barrel oil. And yet for how long can oil avoid the maelstrom that has whipped up across almost every other traded asset?

This article is supposed to be a forward-looking piece so I'm not going to bore you too much about the conversations I had with half a dozen key oil ministers and the one-on-one with the OPEC Secretary General Abdallah el-Badri. Anyway, it would be unseemly to brag about the access I got to these people. Safe to say, all would seem well in the world with them when you've got average oil prices for Brent at over $100 per barrel for 2013, just the four times higher than the price of $25 averaged in 2002.

And whilst that's great for the petro-dollars for the moment at least, I can't help wondering what's so special about oil that it will continue to avoid the turmoil elsewhere? Yes, the price is down from the over-$115 barrel high of February but no-one, even the producers, was comfortable with it at that level in the first place.

Why is it that while copper, gold, and indices such as the Nikkei have had such huge swings recently, oil is sitting exactly where OPEC and the rest of the industry wants it?

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"Wake up Sedgwick," I hear you say. "It's because OPEC is a cartel and they control the price with their cunning not so 'invisible hand' on the tiller. If it wasn't for them we'd all be enjoying a global growth renaissance on the back of $50 oil."

If only it were that easy. You see OPEC now only controls around a third of global supply and non-OPEC supplies, including the flow contributed by the U.S. shale revolution, is eating the Vienna-based group's lunch in terms of new supply. Quite simply: OPEC's vice-like grip on price ain't what it used to be.

So could we be heading for a fall in oil prices? Well, why not? Chinese demand growth has slowed, European economies have forgotten what growth is and U.S. economic expansion, whilst relatively good, is being serviced by enormous amounts of new supply domestically from shale. All of which seems to point to a supply and demand imbalance.

And yet further complicating the picture, traders remain long oil, with net positions as high as they have been at any time in the last year, which may be telling us that demand is more robust than appears to be the case when looking at the economic data.

So we appear to be stuck within a tightish range around $100 per barrel for Brent for now. Given everything else going on in these newly volatile markets, that makes oil pretty dull. And dull is a good thing in an uncertain world, no?

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