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Oil prices have continued to climb today, and are currently (10:30 a.m.) trading up $0.83 to $83.71. Earlier in the session, it had looked as though profit taking would drive prices lower, but that sell off was only momentary and supply concerns along with weakness in the U.S. dollar have once again led to price gains. Update: by the end of the day, oil had reversed again to close at $81.66.
There are several factors that are leading to the recent run up in oil prices. I have looked at these a few times over the past few days, and they remain the same; upcoming winter heating months, geo-politcal unrest in the Middle East, and the looming threat of disruptions related to the hurricane season. All of these have one thing in common -- supply / demand concerns. The market will react quickly and emotionally to any one of these factors, and even more strongly should more than one start to play out at the same time.
Yesterday, I mentioned the increasing tension between Iran and the West, with Iran now claiming the nuclear issue to be a "closed case" and that it will defy any UN sanctions imposed on it. This is happening at the same time that the United States is toughening its stance against the Middle Eastern country and calling for other nations around the world to do the same in its attempt to put an end to the ruling party's "reign of terror."
The dollar hit another all time low today versus the euro as inflation concerns in the U.S. are continuing to be priced into the currency. The euro rose to $1.4207, surpassing its earlier record high of $1.4189 which was set only yesterday.
For now, the two main factors remain concerns over Iran and the dollar. Seeing as how neither of these factors appear to be close to reversing, it would be hard to imagine oil falling too much from these levels. I am left wondering, not if prices are going to fall under $80, but if prices are actually headed up to $90. It definitely could happen. As I mentioned earlier, we are advancing further into the hurricane season, and all it would really take at this point to shoot prices up to $90 would be one big hurricane. Let's hope that doesn't happen, but we must be prepared for such an event.
Last week I wrote that we would be seeing $85 oil by the end of this week. I was off on that estimate, but only slightly, and the day is not over yet. It is possible to see $85 by the end of the day, but I doubt it. I am guessing that oil will finish the day right around $83.50, but I also expect to see another couple of up days at the start of next week that will push the precious crude up to that level.
[photo freewine]
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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