The oil market feels like a runaway train speeding toward US$100 a barrel. Ask oil traders in Geneva, Singapore, London and Houston, and you hear the same thing: “Buy, buy, buy.” I canvassed the market over the last few days, and there are virtually no bears left. It’s a one-way street bet: long. Jeffrey Currie, a commodity strategist at Goldman Sachs Group Inc.
I know one such contrarian. He has yet to be proven right, of course; his arguments are still unconvincing. But listening to lonely bears is important, if only because you need a sparring partner to challenge your assumptions. In May 2008, with many predicting oil prices were a never-ending bullish bet, he warned that the market was looking like the dotcom bubble. For a few weeks, he was wrong, and prices rose to an all-time high of nearly US$150 a barrel. Then they crashed, hitting a low point just above US$30 a barrel in mid-December of that year.
That’s not the only potential supply surprise. The U.S. and Iran appear to be in advanced talks to restore the nuclear deal, paving the way for Tehran to return to the oil market in full. I suspect Iran has been selling more oil than many believe, smuggling thousands of barrels a day into markets in East Asia, so its return may not be that bearish. Still, a deal means more Iranian oil, not less.