If you haven’t seen the 1995 film ‘The Usual Suspects’, reading this post is going to be like hearing a hilarious catchphrase from a comedy series you have never seen;- not that good out of context. So, if you have seen it, good deal - read on. If you haven’t seen it, I recommend:
a) you watch the film then read this post, or
b) you watch the film anyway.
Do not read this post, thinking you will watch the film at a later date, because I am only going to ruin it for you. Sorry.
When I lived in London, some rather mean-spirited person decided to graffiti the best bit of the film - the shocking twist at the end – on the wall of a London Underground station. With about 100,000 people passing through Piccadilly Circus each day, out of all the things they could spray-paint, I always thought it was pretty lousy for someone to write ‘Kevin Spacey is Keyser Söze’. (I have just ruined it for you if you haven’t seen it - I told you not to read on).
Ok, after all that, my point today (there was one, I promise) was to highlight how crude oil is in fact, Keyser Söze. And here is why: after all the shenanigans of 2008 when oil hit a warlording $147, it had an equally crazy journey in 2009, bouncing from a beaten-down and limping level of $32 to a high of $80 by year-end.
Now 2010 has started with a flourish-turned-flop, and crude is looking like Verbal Kint once again. But here’s the thing; it is all a ruse. Crude is borrowing from the first page of Keyser Söze’s playbook - ‘The greatest trick the Devil ever pulled was convincing the world that he didn’t exist.’ The spotlight shines so brightly on the US dollar and equities to explain away the moves in crude oil, that the dreadfully weak (yet recovering) fundamentals of the oil market remain waiting in the wings.
And what’s more, crude is more than happy to play out the role of Verbal Kint (‘a man can convince anyone he’s somebody else, except himself’), with Keyser Söze orchestrating moves at stage left, ready for the underlying fundamentals to once again lead an unsuspecting market. Just see the below chart; the signs are all there. By the time the relationship wanes between crude and the current drivers du jour, prices will have gotten away. Demand will be back at pre-recessionary levels, with supply constraints from resource nationalism moving back to center stage once more. And like that….the opportunity is gone. nb. dotted line on OECD oil demand is estimated by IEA.