Crude oil has had a good run since October, rallying approximately 37% from $75.36 to $103 a barrel on 17 November, as geopolitical concerns arising from US sanctions against Iran fuelled speculation that oil could experience a supply shock reminiscent of the Iranian Revolution of 1978/79.
 
On Thursday morning crude oil for January delivery remained supported above the psychological $100 a barrel level following coordinated central bank action, which stimulated risk appetite and weakened the US dollar. On Wednesday the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan and the central banks of Canada and Switzerland jointly agreed to lower the cost of existing dollar swap lines by 50 basis points from 5 December, as well as take other measures to help replenish liquidity in the financial system. The announcement helped to push crude oil up by as much as 2.9% to $101.75 a barrel. Crude oil may also benefit from tighter inventories as we head into the winter months. The US Energy Information Administration (EIA) on Wednesday showed that crude oil inventories increased by 3.9 million barrels to 334.7 million last week, although the week before they had declined by 6.2 million barrels to 330.8 million.
 
A recent report by Goldman Sachs said they expect Brent crude prices to continue to rise, even in an environment of weak economic growth. They forecast WTI to rise to $126 a barrel by 2013, and believe that the WTI-Brent spread is likely to compress further as the Seaway pipeline increases capacity to 400,000 barrels per day. The firm expects Brent to average at $120 a barrel and WTI to average around $112.5 a barrel in 2012. In our opinion geopolitical concerns with Iran and the expectation that central banks stand ready to act (as already demonstrated) serves a powerful platform for crude oil to test new highs.