One of the great lies is “I don’t like to say I told you so.”
Balderdash. Everyone loves saying it when the rare opportunity arrives,
so let me grab the chance on what’s happening with oil prices while
we’re still seeing petrol price beat ups in the fish wrappers.

As explained in Crikey Daily on 7 July, there’s plenty of bullsh*t
in the crude market around the US$60 level which the gullible media
generally repeat as, dare I say it, the good oil. With crude closing at
$57.32 this morning, a little sanity is creeping back into the market
after the speculators had their fun. Of course, if you had been brave or
silly enough to believe your correspondent and short oil around $61,
you would now be very nicely ahead and should send a bottle of decent
red by way of thanks.

There’s also a growing number of reasons to suspect the worst of this
oil price spike might soon be over. The main excuse for last night’s
lower oil price was another report downgrading demand forecasts – this
time from OPEC. (here)

Perhaps just as interesting is the decision by Cathay Pacific to not
hedge jet fuel at present prices. Cathay’s hedge book is down to 12% of
2005’s requirement. That’s a bet by the wily carrier that fuel prices
aren’t going to get worse and could well improve. Oil is not going to
be cheap again, but it inevitably comes off the boil after a rally like
the one we’ve seen. If Cathay’s right, look to a rally in airline

And it’s not just oil that might have seen the best of this commodities boom. Yesterday’s Dryblower column on
ponders what the 34% fall in the price of US hot-rolled coil
(it’s a type of steel, OK?) over the past ten months might mean for the
next round of iron ore contract negotiations. As usual, the surge in
steel prices last year to record highs resulted in increased production
which eventually means lower prices – the market mechanism still works.

And the Baltic Dry Index just keeps falling (see Crikey 4 July). This is
not a bust for our resources boom, but a reasonable retreat from
unsustainable highs. Before it all stabilises, beware of politicians
tempted to do two things:
1. Fiddle with the markets tomorrow to try to solve yesterday’s problems; and
2. Bet their state or federal economy on last year’s resources income growth being repeated ad infinitum.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey