By Jonathan Barratt


Oil has gradually being trading higher over the course of the week and as it knocks into resistance at US98.50 [WTI] we have decided to analyse the market a little more in depth to see whether or not we feel that it has sufficient momentum in order to break resistance and then trade through to US100.00. In last week's report we noted that demand over the summer drive time, weather issues surrounding a hot summer and the up and coming hurricane season have increased expectations about a pick-up in demand or a restriction in supply, however at the time of writing and given the increased level of inventories it was not sufficient reason to see a real lift in prices being sustained. The pros and cons balanced each other out. However, since then we have a seen prices steadily rise, the USD under pressure, increased expectations about the US recovery and more importantly traders looking towards the Middle East. Increased tensions in Syria are seeing traders going long, factoring in geopolitical risks associated with the region as they see developments could spill over into neighboring oil producing countries.

That's the key, "neighboring producers" and this is where we diverge from the market's thinking and suspect that crude at these levels is very expensive. Why?

Over the last six months we have seen Syria's neighbors all try to establish an argument in order to achieve their own domestic goals, using the nations civil issues as a scapegoat for their own pursuits. The main contenders are Iran and Israel and through the conflict both are looking for political and sovereign gains. It is interesting to see that both sides have reason to expand the conflict however nobody is prepared to take the next step for obvious reasons. Israel has even gone to the extraordinary steps of actually bombing Syria and yet Syria has resisted these moves and failed to retaliate. Further it's been reported by the US that the Assad Government has used chemical weapons on its own people, thereby aggravating the global community and perhaps providing an excuse, a la Iraq, to become more involved, however so far restraint has been the order.