Oil is now well and truly at unheard-of levels, even adjusting for inflation. However, to those bears who are calling the top, I’m not saying that looking for a short-term shorting opportunity is unwise. But you shouldn’t expect this to be the highest point that oil hits in the longer term.

I accept that there are a lot of people, especially bankrupt and unpopular Western governments, who have a major vested interest in getting the oil price down, so you can rest assured there will be all sorts of shenanigans behind the scenes applying downward pressure. However, the power of these institutions both at home and abroad is waning.

Another bear point is that there seems to be a bit of resistance here at $125, and it’s a nice round number for an intermediate top. Then there’s the fact that oil often tops out in March and, if it doesn’t do that, then May will be the month of choice.

But, as we saw in my article a few weeks back (see here: Will oil hit $160 a barrel next week?), there is a supply squeeze. Hats off to ‘Zapata’ George for calling it. We are on course for his $160 a barrel. Yes, there are lots of speculators in this market, but much of this price is genuine demand in the face of decreasing or unchanging supply.

What’s more, all these speculators are doing in real terms is hedging their cash against inflation. Is that so bad?

As soon as people say, ‘it’s different this time’, you can be sure the top will be in within a few weeks. But, when Peak Oil – the point at which we are getting as much oil out of the ground as we ever will - strikes, it really will be different this time. Is Peak Oil kicking in now? I would say fears of Peak Oil have certainly been pushing the price up for some five years or more.

I do expect something will happen over the coming few weeks, some piece of news that will serve to knock the price down. Some deal might be agreed in Iraq; an index might be re-jigged again or a technological breakthrough be announced; perhaps a week will go buy without an attack on a pipeline in Nigeria.

But it won’t knock the price down far.

Oil demand will not decrease by anything significant, nor will supply increase. Oil is in a long-term bull market. The best way to play it has been to buy and hold. Most of those who have tried to be clever and trade it could have better spent their time playing Frisbee on the beach.

The secret has been finding the right entry points and that, my friends, has been when oil retreats to the 52-week moving average – its average price over the last year. That average is at around $90 now. Will we ever get back down there? At the moment it feels like we’ll never see double-digit oil again.

We are a long way above that average now. So much so, that you could say oil was a sell – in the short-term at least.

But in the long-term, oil will go a lot higher. So high you are going to think twice about driving every time you get in your Maserati (the one you bought with the proceeds of your oil investments). In the intermediate term we need to consolidate these higher prices. If it goes much higher from here, it will be on a spike and most likely come back down again.

When I pointed out last week how oil has dramatically outperformed oil stocks, a lot of people wrote in and asked how to buy oil. Well, you need a broker who sells futures; you can spreadbet it; or you can buy CFDs. I would not recommend any of these if you are not experienced. A simpler option is the US-listed US Oil Fund ETF (USO). ETF Securities also has various oil ETFs listed here.

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