NEW YORK ( TheStreet) -- This oil market is acting far better than it should -- far, far better. And for a lifelong trader of oil like me, that's about all one needs to be convinced that it's headed higher.
Fundamentally, oil has no business being steady at $100 a barrel in the West Texas Intermediate futures contract and more than $110 a barrel for the European Brent futures contract.
Indeed, the outlook for growing demand has virtually ground to a halt everywhere but in China. Here in the U.S., we've cut demand by almost 2 million barrels a day in the last five years, and Europe is also experiencing a demand slowdown.Even in China, oil imports increased only 6% in 2011, which represented a massive slowdown in growth compared to the 17% rise in 2010 and the 14% rise in 2009. From a supply standpoint, increased development domestically in the Bakken and other oil-shale resources, as well as in the Gulf of Mexico, have kept our markets saturated. Globally, new sources are coming online in Brazil and Angola, and formally lost sources in Libya and Iraq are rapidly making their way back to market. Much of the recent support in oil is being attributed to geopolitical conflict. Continuing Iranian nuclear aspirations have threatened to close the Strait of Hormuz, through which more than 25% of all global oil flows. Although Iran is unlikely to follow through with this threat, there is continued U.S. pressure to increase economic sanctions on Iran and force a worldwide boycott of Iranian oil exports, a not insignificant total of 2.6 million barrels a day. But last week brought some disappointments to that plan. The European Union decided to postpone a decision on an Iranian oil boycott for six months while struggling sister states Greece and Italy could secure alternative sources for Iranian oil. Treasury Secretary Tim Geithner traveled to the Far East to elicit the support of both Japan and China for an Iranian boycott with less-than-stellar results.