Oil Could Face Resistance In Its March Toward $100
If oil prices have difficulty clearing the $100 milestone, psychology might be one reason why.
Expectations for tight year-end supply and other factors that have driven crude to record heights aren't likely to diminish soon. But psychological resistance to triple-figure oil and a nagging feeling that prices have run too high, too soon could keep crude from reaching $100 a barrel before year's end, as traders decide to lock in gains instead, analysts say.
December crude-oil futures on the New York Mercantile Exchange closed Friday at a record $91.86 a barrel, in large part because of forecasts for a huge global supply deficit in the fourth quarter, a weaker dollar that has made crude oil cheap for traders using other currencies, and an unexpected slump in the U.S. crude-oil stockpiles, reported this week. Concern about festering Middle East tensions, particularly between the U.S. and Iran, also sent prices soaring. The inflation-adjusted record remains $101.70, set in 1980.
"Buying is continuing in what is a very, very strong market," said Peter Beutel, president of trading advisory firm Cameron Hanover in New Canaan, Conn. "The only fundamental factors I can see that can bring prices lower is warm winter weather or recession, or profit-taking."
With prices in uncharted territory, winter not year arrived and recession not imminent, traders are looking at price levels to determine where the next pull-back in prices could be. When fresh factors affecting supply and demand are limited, traders often turn to technical charts, which use previous prices to predict turning points in trading.
Some market participants think oil prices aren't likely to go much above $95 a barrel without some new event or change in circumstances, at least not until next year.
"I think we're heading to $95, where we'll likely see some profit-taking, maybe back to $90 a barrel," says Adam Hewison, president of trading information service INO.com, in Annapolis, Md. "We're looking for prices to trade over $100," but not until January or February, he said.
In the six trading sessions ended Oct. 18, crude futures rose 10%, boosted by the falling dollar and plans by Turkey to authorize a military strike against Kurdish militants in northern Iraq. The magnitude and speed of that rise, and a subsequent pullback after it, is partly behind Mr. Hewison's $95 target.
Cameron Hanover's Mr. Beutel doesn't see major resistance before $97.50 a barrel.
Prices had been heading lower at the beginning of last week, but they shot up after the Energy Department on Wednesday reported crude-oil inventories fell to their lowest level since January.
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