Crude oil prices may test the 90 dollar levels in third quarter

August 08, 2009

The oil consuming nations have just started to rejoice the lower crude oil prices but they may not able to do the same in longer term.  The crude oil prices tumbled to the 33 USD/ barrel from its record 147 USD/ barrel (July 2008) and recently regained the steaming point of 70 USD/ barrel.  Better economic data released all over the world especially from Euro zone and United States of America along with emerging market inadvertent positive sentiment helped prices of black gold in last quarter and this positive outlook may further push the  crude oil prices in near future.

The rising inventories and gloomy economic outlook coerced the crude oil prices to as low as 33 USD in February month of this year but earlier crude oil prices  made new all time high of 147 USD in July last year. The cyclic changes in the inventory of crude oil, gasoline, and distillate have added much volatility in lower levels.  Energy Information Administration (EIA) released data has shown an increase of 1.7 million barrel and total stock rose to 349.5 million barrels.  But it was neutralized by the negative inventory data of distillate and gasoline. Even though according to the EIA inventory levels in crude oil and related energy components are above average levels and demand. The emerging demand is still not confirmed; better economic recovery news from countries like China, India and other emerging economies may cause a sudden upside movement in crude oil prices in coming quarter.

Technically crude chart looks very bullish. Prices have recovered well from the interim bottom of 33 USD and currently trading near about six month high level and consolidating in the range of  60-70 USD range for last 3 months. The next critical resistance for the crude oil prices is at 73.50 USD levels but the 38.2% Fibonacci retracement levels from its all time high to 33 USD  still remained untouched which is a next strong valid resistance i.e. 76.75 USDs. But despite all drawbacks crude oil prices gave a strong rebound to 73 USD and tested the same levels almost three times in recent weeks. Price may drop to its critical support levels i.e. $65, $63 before resuming the bull run which has started from 33 USD to 73 USD in (February – June ) earlier this year. Daily chart shows that prices are in the formation process of 5th wave after a strong correction in the 4th wave. The 5th wave may complete somewhere between 87-92 USD.

Therefore upward momentum of oil prices is likely to continue in zigzag way in coming month which will be further can be bolstered by the upcoming hurricane season and swing demand of winter. One important reason to trust in above analysis is that both fundamentals and technical studies corroborating the upward momentum of oil prices in intermediate term. The concealed demand from emerging markets may also direct the prices of black gold in coming months. Hence I suggest the investors as well as trader that play only one side i.e. buy on dips.

For feedback contact at madan@safetradeadvisors.com