Friday, June 06, 2008

Is Everybody Long Oil Yet?

There's panic buying in the oil pits today. None of the explanations for the move make much sense. Some have blamed the move on Claude Trichet, the ECB president, who is claimed to have hinted at raising rates next month. The dollar has sold off for two days on those comments. But what exactly did Trichet say that is so much different than past comments?

``It's not excluded that, after having carefully examined the situation, that we could decide to move our rates by a small amount at our next meeting,'' Trichet said at a press conference in Frankfurt after the ECB left its benchmark rate at 4 percent. ``I don't say it's certain. I said it's possible.''

Well that's clear as mud. Compare that statement to this one from January:

The ECB was "prepared to act pre-emptively so that second-round effects and upside risks to price stability over the medium term do not materialise," he stated, a clear warning it could raise interest rates in the future despite slumping economic activity.

Furthermore, the dollar is at just 157.7 as I write this which is better than the 160.5 the euro cost in April. And oil was less than 120 when the euro hit its high.

Another explanation are the comments from the Transport Minister in Israel that if Iran continues to develop nuclear weapons, Israel will attack. Again, not exactly news.

So why are oil prices spiking today? Because traders are buying it. Why are traders buying oil? Because the price is going up. Where does it end? Damned if I know....

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