“Yes I’ll have another motor cruiser with wall to wall Kylies and a new striker to help Didier out please,” says a beaming Roman Abramovich.

And well he might; if he was stinking rich in the first place I wonder what strain the recent 33% rise in the oil price has put on his piggy bank. With oil standing at $98 ahead of this afternoon’s weekly inventory figures will today be the $100 day?

How about this for a great chart?

If only everything would rise like that (I can’t use the Viagra gag twice in a week, can I?). But how tight is the elastic? How much further can it stretch before twanging violently in the other direction?

So What’s Been Happening?
If you want to place the blame I reckon there’s three main culprits: geopolitics, weak Dollar and inventories.

Geopolitics.
If you read my guide to spread betting crude oil (A Cruder Way To Trade) I mentioned God’s warped sense of humour in dishing out most of the oil supplies to the world’s biggest nutters. Hence there is a constant flow of what’s euphemistically referred to as geopolitical risk (wars, arguments and general misbehaviour in the melting pot of crazies). The current miscreants are the threatened Jolly Turkish Boys’ Outing to Northern Iraq and Iran telling the US, “If he’s got one I want one”. For good measure gunmen kidnapped six workers from an oil vessel off the Nigerian coast and Rebel soldiers in Darfur kidnapped 5 oil workers and warned oil companies to leave the country or else…

Weak Dollar
The weak/-weakening Dollar has contributed to the rising oil price in a couple of ways. Firstly, US investors have been pouring money into commodities like oil and gold as traditional hedges against a falling currency. Secondly, these commodities, priced in US Dollars, aren’t nearly so expensive to overseas investors who, benefiting from their own stronger currency, have said, “ I’ll have some of that”.

Inventories
Usually stocks of oil rise during the autumn months in readiness for the heavy demand during the cold winter. But this year this hasn’t been happening; for the past two weeks the weekly oil and gas inventory numbers, supplied by the US Energy Information Administration, have fallen massively leaving crude oil supplies at the lowest level for two years.

Today the International Energy Agency warned that supplies were struggling to cope with the growing demand from India and China,whose energy use is set to double over the next 25 years.

And the trouble is that when supplies are low markets react disproportionately to any bad news. For example, when Pemex, the Mexican state oil company, closed some rigs when storms hit Central America this accounted for only 1% of global production, yet oil prices rose 1.5 dollars, driven by unusually heavy trading in oil futures.

Big Figures Attract A Lot Of Attention
Just ask Jordan, but she’d probably agree that much of the attention doesn’t pass through quality control. And the same is true of oil; the much-publicised $100 a barrel target will continue to act as a magnet to a lot of speculators. What’s harder to predict is the reaction to hitting $100; there could be a violent sell-off as traders take their profits, or it could pile through, triggering stop losses. Either way it’s gonna make for an exciting time.

OK, so let’s forget about Jordan and look at why buying oil could make you filthy rich or why your trade might run out of gas:

Filthy Rich
The chart still looks great.

Just to clear up any confusion the first target of $100 per barrel refers to the US contract (US Light Sweet), the chart here shows the good old UK version (Brent Crude) that’s more popular over here but trades about $3.5 lower.
The price is following a good up-trend line; the 20-day moving average is still supportive and driving upwards, but far enough away to avoid being crossed in the near term. Friday’s candle broke and held above resistance of the previous few days. A word of caution though; other practising witches of the dark arts might notice signs of bearish divergence on RSI, and the price can still fall over $2 yet remain above the uptrend line. That’s enough to make me squeal if I get my entry wrong!

The next few months are likely to see strong seasonal demand, with orders from China and India remaining firm. As yet the credit-crunchy, sub-prime, liquidity driven housing slowdown hasn’t hit industry, so we’re pretty clueless about demands from the US and Europe.
But as sure as eggs is eggs we can be certain of some form of continuing nuisance from the nutty producers.

Out Of Gas
From the 1st November OPEC increased oil output by 500,000 barrels per day. It didn’t really; it just legitimised some of the over-production already going on. OPEC was slightly begrudging in this apparent concession, as it believes that there is no shortage of the black stuff. It reckons that the current price is the product of speculators and a shortage of refining capacity.

Goldman Sachs, the clever US investment bank that made the original prediction of $100 oil “sometime this decade” last week advised investors to take profits.

The US driving season is well and truly over and the hurricane season only has another three weeks left. The market will then be left guessing whether it’s going to get a bit chilly.

At the moment commodities are being bought as a hedge against riskier assets. But cast your mind back to the original sub-prime problem. At its worst, when funds had to reduce their risk capital it was like Allied Carpets at Christmas; everything had to go. My laboured point is that if we do re-visit the tight conditions of August then commodities like gold and oil might have to be dumped like a Spurs season-ticket.

Oil Companies
Now here’s something to make you choke on your sandwich; the oil majors are having a really crap time!! Last week the world’s largest quoted oil company, Exxon Mobil, shocked markets with a 10% fall in net income. This followed an 8% fall in Shell’s profits and a whopping 45% fall in BP’s third quarter income. What the hell’s going on?
Well, it may not seem like it to you and me but part of the problem is that petrol prices haven’t kept up with the rise in crude prices; the jargon is that the refining margins have fallen, by around 60% since last year, and that’s quite a large part of their business. The other problem is that these guys spend a lot of time sticking rods in the ground to see if anything spurts up and that costs a lot of money. The cost of a drilling rig has risen by around 200% since 2005, Ouch!

So, equities are a different game at the moment, if we want to play in oil we need to use the crude oil spread bet. It now looks on to hit the ton, but pay attention to todays figures, due out at 15.30-there’s a lot of money in there if the figures disappoint. The question is then how far the price could sell off before having another pop at the big figure. But after the move it’s already had I’d trade with a very tight and active trailing stop loss.