Not so, says energy trader Jim Dietz, and he cited three reasons.
First, the oil shorts - - those who believe oil is overpriced / too high - - are likely to mount a rigorous defense of $150. (Oil traded up $4.75 to $146.40 per barrel Friday at mid-day after hitting a record high of $147.27 earlier in the day.) "It will not be an easy barrier to mount. It will be easier to break than the $100 barrier but keep in mind it took several months and at least 5 sequences to break $100, once we got within the range," Dietz said. "Look for almost as tough price resistance at $150."
Second, many oil longs - - those who calculated that oil is trending higher - - will take profits at $150, Dietz said. "The $150 mark will result in many players and institutions cashing in their long trades, on rationality grounds," Dietz said. "For example, if you established trades at $80 or $85, common sense says $150 represents a good time to exit. Likewise for more-daring institutions that went long above $100. The thinking will be 'We're at $150 after a high entry point. How long do we expect this insanity to go on? Let's take some profits and reduce our exposure.' That will add to selling pressure." Dietz added that he is presently flat, or has no open energy trading positions - - his normal stance for a Friday in the summer.
Finally, those facts, combined with already-announced oil production increases by Saudi Arabia, will enhance OPEC's ability to slow gains in the price of oil near/at $150 per barrel, Dietz said. Further, Dietz believes Saudi Arabia will announce still another production increase, perhaps as large as 300,000 barrels, to calm markets, "and eliminate doubts in some energy corners about its spare capacity and ability to ramp-up production."
Oil unlikely to exceed $150?
Dietz's forecast top for oil prices? "Right at $150. I don't see it venturing much beyond that and a price near/at $150 will likely represent a 2008 high," he said.
Oil Analysis: Here's hoping Dietz's forecast is right. In the view of many economists, oil is already at levels likely to cause - - at minimum - - a U.S. recession, and a large slowdown in global growth. That suggests demand destruction in the U.S. and slowing oil consumption growth in emerging markets, which should take a great deal of the upward price pressure out of oil.
Moreover, amid all the doom-and-gloom scenarios regarding oil, brighter (and arguably, more realistic) scenarios exist, but receive little news/media coverage. One of these argues that a bullish stock market would probably take money out of oil to the point where oil would drop to about $90-100 per barrel. Other factors - - a rising dollar, an end to the Iraq War, resolution of the Iran nuclear dispute - - could take another $20-30 off oil's price. If all of the above occurred, oil would trade around $70-95 - - a reasonably fair price, given emerging market growth and oil's current large role in commercial activity.
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Reader Comments (Page 1 of 1)
7-11-2008 @ 4:19PM
william lindblad said...
I would like to believe him too but the reality is that there is no way oil is going under 100 bbl anytime in the foreseeable future. Personally, I think that the 110-20 range would be the best that anyone could hope for.
Hope may be eternal but it does little to ease the economic pressure that is both present and projected by fuel cost alone. Winter is coming and so is 4.00 gal home heating oil along with near record natural gas. The power companies are also effected and there is no way the consumer can avoid this new onslaught on their budget.
----and we still have at least another 90 days to sweat out hurricane season. All it will take is one heading into the Gulf and 150.00 will no longer be any barrier.