Many believe on the street that this move in oil is mostly news driven, starting with the now successful rebellion in Egypt and the on-going violence in Libya. While many believe that it is the main driver for this strong oil rally, I believe it is nothing but a lucky catalyst for those who were bullish on oil.
To be exact, the protests in Egypt started Jan 25th, where the daily range in USO was only 50 cents. The big moves happened 3 days later, and eventually sold off to even lower levels a couple of weeks after. The protests in Libya started Feb 15th, where the USO had an inside day. The big gap up happened 2 days later. Now if these protests were truly the main drivers of the move, wouldn't one think that once the news came out regarding political unrest and public protests in these Middle-Eastern/African countries, there would be at least a quick reaction? One might argue that it took a couple of days for people to realize that these protests were not one-time acts against the government but I would point to a market truism "Buy the rumor, sell the news."
A true test to see what really is driving oil higher is when the political protests in the Middle-Eastern area die down, will oil plummet back to prices in the $90s, or will it hold above $100? I am betting that this is going to be a nice ride for those who are long long after the violence dies down. The main driver then would be oil inventory numbers every Wednesday.
P.S. If oil weighs on the equity markets, this may be an inflection point in the equity markets and may offer better entry prices for strong stocks in the coming weeks.
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