Osama and oil made all the headlines last week. Without having an apparent connection, both had one thing in common - they fell.
Nobody may have seen the Osama end coming, but the correction in oil prices was tipped last month by a few research houses. And the fall was massive; the biggest single day fall in two years dragged the price below the $100/bbl level.
It was not long ago when market pundits were tipping the oil price to break the $150/bbl mark in the wake of the MENA unrest. After the drastic drop in prices, the market seems to have formed a divided opinion regarding the near term and the longer term price.
The bearish camp seems to grow stronger by the day with voices suggesting that the new range could be formed between $85/90/bbl and that it will be a while before oil prices cross $100/bbl again.
Experts cite poor US job data as the primary reason for the price slump, but that alone could not have caused such a drastic fall. The strengthening of the greenback versus the Euro has also played its part, whereas concerns also remain on Chinas monetary policy stance.
In some camps, there is a growing fear that the global economic recovery is off-track and oil above $100/bbl is not sustainable. Economic experts do not see US economic indicators improving in the near term and there is nothing to hint that dollar will lose its strength to euro in the near future either.
On the bullish front, the boat has fewer but stronger players. The Wall Street giant Goldman Sachs has surprised quite a few by raising the oil price forecast for 2011 by $10/bbl right after the recent slump. It was Goldman Sachs which predicted a sharp correction in oil price last month. The bullish call prevented the oil price from a free fall after the bearish sentiments took over.
"It is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year", said Goldman Sachs in its recent research note. There is a belief in the bullish camp that the oil supply-demand fundamentals will further tighten over the course for the year.
Spare capacity is diminishing by the day and is expected to reach a critical level should the Libyan supply remain off the market. JP Morgan, another big voice also echoes Goldmans views, emphasizing that the market fundamentals still very much remain the same and supply constraints are a visible threat.
If anything, the recent slump has wiped away the risk premium - which cannot continue for long and the prices should rebound stronger than before. It is tough at the moment to judge which camp has stronger arguments - but there are high chances that the correction might be short lived, only for a bigger rally to follow.