Don't be fooled by oil slip

As predicted in this column on September 3rd, the price of oil fell sharply over the past week - dropping as low as $62.6 on Monday, before regaining some of the lost ground.

By SETH FRIEDMAN
September 13, 2006 08:36
1 minute read.

As predicted in this column on September 3rd, the price of oil fell sharply over the past week - dropping as low as $62.6 on Monday, before regaining some of the lost ground. The current level of around $63.41 means that the oil price is trading around support levels last tested in June. From a technical perspective, the short term outlook appears precarious for the commodity - if it manages to hold above $65, it could consolidate and form a base before beginning an upwards push. If it struggles to trade above $65, it could retrace as low as $60 in the coming sessions. From a fundamental stance, the oil price appears set to drift as long as there are no political or natural disasters in the near future. "Any short term shocks such as Middle Eastern tensions, or a hurricane in the Gulf of Mexico could see [the oil price] back above $70 per barrel" said Lawrence Peterman, investment director at Eden Financial in London. He added that, although the price has been depressed in recent weeks, the longer term picture is rosier for oil. "Supply/demand imbalances mean that in the long term the price is still in uptrend," Peterman said. The approach of the winter season in the United States traditionally puts great demand on global oil supplies, and this would be exacerbated if hostilities with Iran result in Iranian oil exports being suspended. With all this in mind, the outlook for the coming months appears to be range-bound for the commodity, with the parameters being the $60-70 points. In the immediate term, oil seems likely to head back up towards the upper $60s. Technical analysis is the study of trading based on previous performance, focusing exclusively on price movements rather than the fundamentals of the index/commodity involved.


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