When you think all is quiet another surprise driver arises. Yesterday a combination of bullish oil inventories and the assassination of Benazir Bhutto was enough to push prices strongly higher with crude oil now once again in reach of hitting the triple digit level. Pakistan is now in crisis adding to the ongoing instability in that region of the world. Although Pakistan is not an oil producer it is close enough to key oil producing countries to cause concern if the disarray spreads into other countries in the area. Fears that the turmoil cold spread is resulting in buyers coming back into the oil complex.
Further fueling the buying fire was another bullish oil inventory report which showed a much larger than expected decline in both crude oil & distillate and a smaller than expected build in gasoline. As overall stocks continue to decline the market is becoming more and more concerned over a possible supply disruption during the current winter period.
The market sentiment has clearly changed back to be being biased to the upside. After a period of over a month of prices correcting to the downside the sentiment has clearly changed due to:
· Geopolitical issues moving back into the forefront….Pakistan, Turkey’s military action in Northern Iraq and ongoing problems in Nigeria
· Oil stocks are once again on the decline. It is too early to say this trend will result in supply problems as even though stocks have declined they remain in the normal operating range, albeit toward the lower end for crude oil in the US.
· The latest round of US economic data continues to indicate that the US economy may not be in better condition that thought a month or so ago.
· The US dollar although in a short term up trend (strengthening) it lost ground over the last few days on an increase in turmoil in Pakistan. If the dollar moves back into a defensive position it could also support higher oil prices.
With an strong bump up in uncertainty the oil complex will remain supported as we enter the weekend and a shortened holiday trading week next week. We have indicated on many occasions that oil will trade over $100/bbl. We continue to stay firm with our prediction. With all that is going on again it is likely that this level may be breached sooner than later. Volatility will remain high over the next week as liquidity continues at below normal levels due to the holiday.
Currently prices are mixed in light trading.
| Current Expected Trading Range | | | ||
| | 12/28/07 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:53 AM | Yesterday | | |
| Feb WTI | $96.86 | $0.24 | $97.50 | $85.00 |
| Jan HO | $2.6767 | ($0.0036) | $2.7500 | $2.5000 |
| Jan RBOB | $2.4880 | ($0.0082) | $2.5000 | $2.2000 |
| Feb NG | $7.125 | ($0.075) | $7.660 | $6.640 |
| | | | | |
Dominick A. Chirichella
Energy Management Institute
tel 646.202.1433
fax 801.383.7510
dchirichella@emimail.org
www.energyinstitution.org
www.advancedenergycommerce.com
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