Which way are crude oil prices headed?

21-Jan-10
Crude oil prices peaked to 15 month highs at levels of US$84 per barrel on the Nymex during intra day trade of January 11, welcoming 2010 on a strong note. As per Chemorbis, daily settlements have been over US$80/barrel until January 13 mainly on the back of the rising fuel prices as a result of the freezing weather conditions in the US. The next three trading days saw a dip in February futures to US$78/barrel owing to the stronger US dollar which makes dollar-priced assets appear more expensive to foreign investors. After mounting to US$79 on Tuesday tracking the upswing in US equity markets, futures fell by almost two dollars during the daily trading on January 20. Which way are crude oil prices headed? The short term outlook for crude futures on the Nymex is on the bearish side since the Energy Department is widely expected to report higher inventories for the third consecutive week. The stronger dollar is also curtailing investor’s appetite while the speculations that China, the second-biggest oil user, may accelerate efforts to curb credit growth is very likely to dampen energy demand. Looking at the longer term outlook of the crude oil, an official executive from the International Energy Agency was reported to have said this week that they do not expect to see a major change in crude oil pricing. He commented that large oil stocks in OECD countries will keep supply-demand dynamics in balance. Demand was estimated to grow to 86.3 mln bpd from 84.9 mln bpd in 2009 while non-OPEC oil producers were set to add 1 mln bpd oil equivalent to their production, coupled with a 200,000 bpd increase planned by non-OPEC countries this year. United Arab Emirates oil minister expressed his discontent with the volatility in oil prices, believing that oil markets are oversupplied while the Qatari oil minister finds oil prices hovering in the range of US$70-80/ton reasonable. He also does not think that OPEC will change its output ceiling in its next meeting to be held in Vienna on March 17. Nonetheless, a technical analysis belonging to National Australia Bank Ltd. published on Bloomberg this week suggests quite the opposite. Their longer-term target is for oil to reach US$88-100 a barrel, a range last traded in October 2008. They opine that the economy’s outlook and rising stock markets may continue to guide oil traders while a company analyst even predicts that the US$80 threshold is very soon to be seen once more.
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