With the third quarter earnings season almost over, Wall Street traders are beginning to turn their attention to oil as prices continue to rise for the dollar-denominated commodity. This week, the big three oil companies — Exxon Mobil (NYSE:XOM), Chevron (NYSE: CVX) and ConocoPhillips (NYSE:COP) — are scheduled to report their third quarter earnings, all on the heels of crude touching 2009 highs.
There are plenty of reasons to be bullish on crude these days. For one, the value of the U.S. dollar has plummeted this year and many are forecasting additional weakness for the currency. If trading in the dollar continues to be difficult, the price for crude will certainly continue its ascent.
Another bullish note is the current economic recovery taking place around the globe. Economists like to note that economic prosperity tends to result in greater demand for oil. If analysts are correct, oil-produced products will see significant adjustments in demand, not to mention the potential increases anticipated for business traveling.
Last week, crude oil prices traded above $81 per barrel; an almost 10% higher bid than the summertime average of $75 per barrel. According to the Energy Information Administration’s Petroleum Navigator, prices delivered last week were the highest since the fall of 2008.
Investors will question whether the run-up in price was the result of greedy speculation on the part of traders, or a clear-cut move in supply-and-demand ratios. Technical analyst Richard Ross, head of global technical strategy for Auerbach Grayson, told Forbes magazine “the price of crude oil will trend upward to $85, then $90, settling in at as much as $103 per barrel within the next nine months.”
Ross provided his blueprint for his prognostication to Forbes. To wit:
Ross bases his triple-digit forecast on five key points: the current absence of overhead resistance in crude oil, which has created a price vacuum; the strong force of momentum currently playing out in the market; the increasing strength in equities, which he argues will filter down into demand for oil; the prospect of a global economic recovery; and lastly, the dollar’s decline, which makes dollar-denominated assets more attractive to foreign investors (something we have already seen play out in stocks and gold).
It seems Ross isn’t alone with his bullish call for crude. Other traders at the New York Mercantile Exchange are also projecting much higher prices for the commodity. Matthew Cacciotti, president of MMC Trading in New York, also told Forbes that he thinks oil will trade above $100 a barrel sometime within the next six months. “It looks like it is going to go above $80, and from there, the next stop might be $100. It looks like the economy is coming back…and then, with the weakening dollar, [oil] should continue to rally.”
There has been speculation that OPEC may seek an increase in production to help alleviate exceeding demand for oil. The cartel isn’t scheduled to meet until Dec. 22 to discuss production quotas, but if oil continues trading above $80 per barrel, the 12 members are expected to adjust production lines to maintain equilibrium and keep prices reasonable.
As Bloomberg News reported, any increase in oil production “would depend on whether prices remain at $75 to $80 a barrel, stockpiles return to the five-year average, and floating inventories disappear.” Some OPEC leaders are not entirely convinced changes are likely.
Kuwaiti Oil Minister Sheikh Ahmad al-Sabath said Oct. 6 to Bloomberg that “OPEC is unlikely to change output targets at the December gathering and that it is ‘impossible’ for the organization to raise production this year.”
Other Articles Related To This Topic:
