Betfair Official Blog

The world's big Oil problem. There is too much of it

Daily View - 5th March...

Commodity markets finally saw a touch of profit taking and my comments yesterday about the possible short-squeeze in Oil proved prophetic. More and more traders are getting ever longer of commodities (any commodities) and the sentiment appears to be if you 'drill for', 'mine for', or 'grow it', then somebody somewhere will buy it, no matter what the price.

Reading many misinformed comments about the imminent demise of Oil reserves across the globe, one wonders where people get this information. Declared recoverable reserves (always conservative anyway) give some 130 years of supply at current extraction rates. Even if we doubled this production over the next ten years (almost impossible), then they would still last some 70 years. The point about a shortage of a material causing price inflation is that until such time as the shortfall becomes a problem, the price will remain at reasonable levels.

Other commodities are, likewise, not exactly 'running out' (although copper is reputed to be looking a tad thin on the ground.) The whole point about this article is not to suggest that commodity prices are going to collapse, but to point out that the one-way traffic of the last year or so is probably more of a catching up exercise after decades of being left behind in the inflation stakes. Before the recent moves, most commodities were comparable with prices from the eighties.

The FTSE is up 25 points and this is actually a pretty good performance given that it gave up almost 30 pips in ex-dividend value last night. We are still below 5820 though, which may give the bulls some pause (even though it means nothing on a yield/value basis) as this has proven something of a support/resistance level over the past year. Likewise 5720, (from where we bounced at the worst point yesterday), will be focusing minds as we look towards the immediate direction. The index has now had five down days in a row and this type of momentum can be difficult to turn around.

On the FX markets the Dollar has recovered some poise but the principal loser has unfortunately been the Pound once again.