From the May 01, 2009 issue of Futures Magazine • Subscribe!

Crude oil climb?

Phil Flynn, senior market analyst at Alaron, says that despite bearish supply and demand fundamentals, crude oil is still poised to move higher in May. He says the Federal Reserve’s quantitative easing program has influenced the price of crude. “If the economy gets worse, there’s a strong likelihood that the Fed will be more aggressive on the quantitative easing,” Flynn says, adding “If it weren’t for the Federal Reserve actions, oil would probably be at $25 a barrel.”

Darin Newsom, senior analyst for DTN, says that the contango in the futures spreads is strengthening, indicating that the underlying supply and demand is growing more bearish.

“The demand that we normally see pick up in the spring doesn’t exist, so the non-commercial money is betting that this spring and summer we will see at least a slight pick-up in demand. The [International Energy Agency] is looking for world demand to continue to slide throughout 2009. It’s not that surprising when we look at these spread relationships going through the balance of 2009 and into 2010. Until we see that turn, rallies are going to be limited,” he says.

Newsom adds if gasoline gets a spike coming into the summer driving season, crude oil could go up to $70. “There’s going to be some resistance up around $60, but more than likely if gasoline can get up to $1.72, crude oil could climb to about $70. Around July 4, that will bring an end to it and it’s going to head back down,” he says.

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