In early March, typically a build period for crude oil inventories, May crude oil futures were trading above $106 per barrel. “The market is concerned about the supply and the decision by OPEC to maintain current quotas,” says Thomas Hartmann, analyst for Altavest Worldwide Trading. However, he says actual shipments of crude oil have decreased by 400,000 barrels a day, and Hugo Chavez, Venezuela’s president, when he’s not busy nationalizing oil production and battling Exxon in court, has been rattling his saber at Colombia, which can’t be good for production. In April, Hartmann says support is $100 per barrel and resistance is at $110. Downside risks are based on U.S. dollar recovery.
“Fundamentally this is a bear market,” says Timothy P. Evans, analyst for Citi Futures Perspective. He says current prices are a hedge against inflation and a weak U.S. dollar. “That’s why it’s $107 per barrel. We don’t have tight inventories. We have gasoline inventories at their highest level since March of 1993,” and efforts to redefine the average inventory levels as tight are dangerous because when it comes time for profit taking, there will be no physical tightness to support the market. “There is a lot of fundamental risk on the downside and the higher we go, the larger that risk becomes, because the fundamental implications of higher prices are all bearish,” he says, adding that this is a bubble.
