Oil stalls again above $70

By Pete Southern in LiveWire Economics Blog | September 2, 2009 15:17 |

Oil continues to find a ceiling above the $70 per barrel price point as there has proven to be no major catalyst to push the price of the commodity above $75 in the near term. Benchmark crude oil was actually up about 60 cents Wednesday (September 1) morning after reports on inventory levels showed a drop in reserves, suggesting a possible increase in demand.

The first two days of the trading way saw oil give back about $5 per barrel after it appeared primed for a retest of yearly highs. After losing $1.91 on Tuesday, to settle at $68.05, the price of a barrel climbed slightly in the early morning Wednesday because of the data on inventory levels.

A report late Tuesday from the American Petroleum Institute (API) showed a drop of around 3.2 million barrels of oil last week. Analysts were caught off guard by the magnitude of the inventory plunge as evidence by a Platts (energy information arm of McGraw-Hill Cos) survey showing an expected fall of 1.9 million barrels of inventory.

Crude inventory levels were not the only drivers of higher trade on Wednesday morning. Other positive signs on the US economy helped encourage oil speculators who have largely been following the flow of US stocks and economic recovery signals.

A key report on manufacturing showed an increase in production orders for the first time since January of 2008, a sign that perhaps companies are starting to gear up for better times. Housing data continues to improve as the National Association of Realtors said pending home sales reached their best level in about two years.

A reduced inventory level, greater demand for oil, and an improving economy is effectively the perfect blend of factors to potentially drive oil through the $75 price ceiling that has caused a stall in recent months. Still, many analysts believe pure speculation has already place the price of oil much higher than supply and demand economics would dictate, and that perhaps an improved economy has already been fully priced into the market.

Consumers, while appreciate at the prospects of a better economy, may face the likelihood of a pricy winter heating season, as natural gas could be higher than it was last winter. After breaching $147 in July 2008, oil dropped sharply before the coldest part of the winter kicked in. The $30-40 per barrel oil helped keep natural gas and heating costs modest during the past winter season. Natural gas climbed by 3.6 cents in Nymex trading to $2.86 per 1,000 cubic feet. Heating oil also jumped 2.41 cents to $1.78 a gallon.

Neil Kokemuller
8:48 AM EST
Wednesday, September 2, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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