Oil prices have retreated a bit today as last week's concerns over a tropical storm in the Gulf of Mexico turned out to be unwarranted. Now that the latest supply disruption scare has passed, most analysts are expecting to see prices continue to fall after oil's strong gains earlier this month.I would caution against assuming too quickly that prices are going to head too much further south. There are still several factors that could easily keep prices at least where they are now, if not higher. The main issue this time of year is always going to be possible hurricane disruptions.
While this past weekend's scare fizzled out before causing any damage, the next possible major storm could form at any time, which would resonate panic in the markets and edge prices higher.
We also have to pay attention to the upcoming winter heating months. Demand for heating oil will depend on just how harshly the winter hits across the country. Analysts are still pretty divided at this time on the question of supply in the next few months, so a lot will be determined by mother nature as to the level of demand we see through the end of the year.
A final factor that is once again out of our control to predict is the possibility for geo-political tensions hampering production output. As we discussed last week, there is constantly the real possibility that we could see an event like last year's Israel / Hezbollah conflict break out at any time. There is currently tension in Nigeria, concerns brewing over Iran, and the ever present instability in Iraq.
For now prices have continued to stay above the $80 mark, with futures trading down 69 cents to $80.93. I would expect the market to hover right around the $80 mark for tomorrow as well in anticipation of Wednesday's inventory report from the Department of Energy, which the market will probably use to decide which direction oil will be headed for the upcoming week.
[Thanks to gsloan for the photo]
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer
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