Today, oil prices have continued yesterday's sell off, falling $1.13 down to $79.11 as more profit taking is hitting the market. Today's selling comes after prices dropped by $1.42 yesterday as traders seem to believe current market prices are unjustified based on current fundamentals. After the steep run up in prices last month, we should not be too surprised to see prices retreating a bit, but I would urge you not to read too much into the past couple of days of trading. It would be unwise at this point to assume prices will head too much further down over the next few weeks.
We will get a good indication of just where the market wants to head tomorrow when weekly inventory data is reported. Based on the recent trend, I would not be surprised at all to see inventories have fallen more than expected last week. Analysts are expecting to see a draw of 400,000 barrels last week, and if we see any additional declines, prices are going to be back over $80 a barrel fast.
Let's also not forget that we are in a rather volatile time of year for oil prices. We are going to continue to have to keep an eye on the weather; both in the form of possible hurricane concerns, as well as the upcoming winter heating months. Strong weather taking place in either of these areas will also push prices higher instantly.
The final factor that we also have to continue to pay attention to is the current tension that is brewing over Iran regarding its nuclear intentions. Hopefully there will soon be a suitable resolution to this volatile situation, but any hint that things are going to get worse between Iran and the West will once again erupt in supply fears and lead to higher prices.
For now, I am going to continue to assume that prices are going to continue to stay right around the $80 mark for a while. Any additional price declines, while welcomed by the market, will be in my opinion short lived.
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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