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My Say: Is US$60 a barrel here to stay?

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 Forum...My Say  

>> My Say: Is US$60 a barrel here to stay?, July 5, 2005
 Feedback from The EDGE's Chief Editor  
Subject:   [Re: Re: ] Article on market trends
From:   Azam Aris <>
Date:   Monday, August 15, 2005 1:12 PM

a feedback from a reader.........perhaps your take on the market for the rest of the year. seems to be heading 950 and above where does oil prices fits into this. can do a market/plus oil RT special.

Subject:   [Re: ] Article on market trends
From:   Azam Aris <>
Date:   Monday, August 15, 2005 12:02 PM
To:   Tan Che Leng <TCL@HLG.COM.MY>
hi che leng.
we will 4ward yr request to ariffin. the market as measured by KLCI has been quite upbeat.
but guess yr clients want to know abt the second and third liners rather than klci stocks, right?


  ----- Original Message -----
  From: Tan Che Leng
  Sent: Saturday, August 13, 2005 2:54 PM
  Subject: Article on market trends

  Hi Mr Ho, I am Leanne from HLG Securities Sdn Bhd. I have been an EDGE subscriber thru my company since many years ago. I remembered that EDGE did have several articles about KLSE overall market trend by one malay guy by the last name of Ariffin. I just can't remember the full name. Since the market has been in the doldrum for so many yrs since the technology market burst in 2000, it might help us to shed some lights on the timing on when the market will come alive again. It would be nice to have him to write an article on the market direction again. I remember the last article by him was on oil prices. Many clients who have been holding on second/third liners are waiting seems to be endless yrs for their counters to recover. He talks about the three inverted Buddhas so I remembered, people are always looking for some sheds of light when we are still in the dark. I can be reached at TCL@HLG.COM.MY. Thks.

>> My Say: Is US$60 a barrel here to stay?, July 5, 2005
My Say: Is US$60 a barrel here to stay?
Surging world oil prices are the norm nowadays, irrespective of whether one wants to believe that speculative mania is at play. Today, our economic masters are pointing their fingers at speculators. Last year, Saudi Arabia's Oil Minister Ali Naimi was quoted as saying he did not believe oil prices would ever reach US$60 a barrel. He said the burgeoning influence on world oil prices from a new breed of investors had weakened the muscle of the Organisation of Petroleum Exporting Countries (Opec).
"US$60 oil is here. Oil prices hit that milestone for the first time [during intra-trade trading] Thursday (June 23, 2005), as the bullish frenzy that has gripped the market for months deepened," FWN Financial News reported.
Alas, my forecast published in the article "Flirting with US$60 barrier?" (Issue 513, Aug 30, 2004) has materialised. No doubt, prices will retreat, as profit-taking activities seep into the pits of the New York Mercantile Exchange (Nymex). That's part and parcel of being in the marketplace — for whatever commodity. But now, the pundits are toying with new targets of US$70, and even US$100 per barrel. Lest we forget, Goldman Sachs warned of a superspike of US$105 crude! It may not happen so soon (see my article "Oil for thought", Issue 544, April 11, 2005). It took about 10 months for crude oil price to breach my earlier forecast of US$60 per barrel. Will the price remain at that level, retreat or surge ahead?
I believe for certain that speculation is not the only culprit in the crude oil equation. As I have argued before, among other factors, "anything can happen under the Pax Americana agenda". Is it pure coincidence that oil finally breaks past the US$60 barrier for the first time with news of Iran's President-elect, Mahmoud Ahmedinejad, being a conservative or even a hardliner?
Apparently, the market knows best the potential expectations on the geopolitical front. It happened during Gulf War I, as told vividly by Ron Insana, CNBC's popular financial anchor, in his book The Message of the Markets. Is it bound to happen again — a prelude to another heightened Iran-US confrontation that may lead to a conflict? Classified information does leak out as we have seen in many Hollywood movies, and in the real world, "Deep Throat" (though it's not oil-related) was a case in point. Perhaps it's not an exaggeration to imply that aside from crude/refined oil supplies and inventories, information of such classified nature may have its hand in the pits of Nymex, Chicago Board of Trade and other financial Meccas.
The global crude oil market is like a roller coaster with a powerful force brokering behind the scenes. Whenever a new high, supposedly pushed by speculators (with or without insider information), is reached, Saudi Arabia, a major Opec producer, normally issues a reassuring statement with or without "pressure", primarily from its staunchest ally — the US. Light sweet crude on June 23, 2005, touched an intra-day high of US$60.02 per barrel on the Nymex, but ended with a settlement price of just below US$60. Opec's reassurance of pumping more oil did the trick. But that was a lull before a gathering storm, and so, it faltered again, presumably due to fears that refiners are struggling to keep up with demand for the second half of the year.
The next day, crude oil for July delivery on the Nymex hit just slightly below US$60 per barrel. But crude oil for the following month to July 2006 delivery ranged from an intra-day low of US$60.10 (for August delivery) to an intra-day high of US$62.35 (for December delivery). These indicate fear of pent-up demand for the third and fourth quarter of this year. But do expect profit-taking to resurface along the way.

What's next?
Refer to Chart 1 for my forecast on spot crude (West Texas Intermediate [WTI] US$ per barrel) and Chart 2 for my forecast on sweet light crude (Nymex, nearest delivery month).
In both markets, WTI is currently trending in a major wave 3 with a slight correction bias to wave 4. However, a 78% profit-taking index (PTI) indicates a strong bias towards further upside — to an extended wave 3 or wave 5. Technically, and in Elliot wave terms, the spot market (WTI) faces the possibility of retreating briefly to US$56.30 to US$57.20, before reversing its direction to US$65 to US$72.66, and then, possibly to as high as US$79.42. That would fit into the US$70 per barrel target which market players are talking about now.
Likewise for the futures market (Nymex), the numbers to take note are as follows: A possible retreat briefly to US$56.37 to US$57.32, before reversing to US$64.76 to US$72.67, and then, possibly to as high as US$79.32. All in all, I would look at US$65 as the next upside target in the medium term.
Now, a bit on taxation as reported by Rigzone — the upstream exploration and production portal. Persistently high crude prices for the past 12 months saw oil companies in Alaska reaping more than US$5 billion, according to a new state estimate. "The state government is expected to pull in US$3.04 billion in oil taxes and royalties for the fiscal year that ends Thursday. That's more oil money than the state has collected in a year since 1991," Department of Revenue analysts said. However, the downside is that Alaska has a "regressive" tax system, where the state's percentage goes down when oil prices are high.
What about our own oil company, Petronas? Is our government getting its fair share of the black gold money via petroleum/petroleum products taxation? If so, the economy should be in better shape.

Arifin Abdul Latif is an economic chartist based in Kuala Lumpur

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