WTI Oil Chart 5 Jan 2011

Daily oil prices have today rebound back above the $90 per barrel price handle following better than expected crude oil inventories which confirmed a draw of -4.2m barrels against a forecast of -1.4m barrels.  This data also followed much better than expected employment data in the US suggesting that the US may now be seeing the start of a much firmer economic recovery.  Two further factors which will also impact commodity prices include Iran and Kuwait’s determination to maintain OPEC production targets and the emergence of La Nina weather phenomenon, confirmed earlier today by the Australian Bureau of Meteorology.  According to the FT it seems the “strength of the present event is inspiring comparisons with 1973-1976, when several years of La Nina conditions triggered severe droughts and pushed the world into the most extreme food crisis since the second world war”.  It’s effect on oil production will be seen in disruptions to offshore drilling and production.

From a technical perspective crude oil prices look set to re-test the psychological $100 per barrel price handle which given the stance taken by OPEC and possible weather conditions may be sooner than anticipated.

Kuwait & Iran stand firm on oil production

WTI Chart 4 Nov 2010

The long awaited breakout from the recent pennant formation for daily crude oil prices finally arrived this week aided and abetted by the FOMC statement yesterday with daily oil prices surging higher, as expected and as we have been forecasting for some time.  In today’s oil trading session the upwards momentum has continued taking oil prices beyond the $86 per barrel price point, to trade at $86.66 at time of writing.  However, this breakout can only be considered to be complete once oil prices have cleared the $87.14 high of April this year which seems increasingly likely given the chronic weakness of the US dollar as it looks set to fall for some time to come.   Once oil prices clear this level, this will provide the requisite platform for a sustained rally, and as such we should see a longer term trend develop for the commodity as we move beyond $90 per barrel and on towards the inevitable $100 per barrel in due course.  The 9 day moving average continues to provide excellent support to the recent move higher and with the 40 day average providing longer term and deeper support, the outlook remains firmly positive for crude oil prices which have also been helped higher this week by the Saudi Oil Minister’s comments who suggested that OPEC would be comfortable with oil in the $80 to $90 per barrel region.

Oil hits six month high as dollar slides