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

Crude oil rallies

After receding below $60 in mid-July — nearly one-year to the day of the 2008 high — crude oil rallied back near the June high above $70 due primarily to dollar weakness. Analysts expect crude to maintain that level into September based on expectations for the dollar and equities.

“There’s been a close correlation with the equities market, and the momentum that has built [in the S&P and the Dow] keeps the momentum underneath crude. We’ve struggled above the $72 level and fundamentally it’s overpriced,” says Dave Chatterton, vice president at RJO Financial. “The equity markets are supportive, but the fundamentals are the drag on the complex right now.” He expects crude to be in a $70 to $74 range in September.

Dominick Chirichella, founder of the Energy Management Institute, says the market is choppy and prices will come down into the mid-$60s before breaking out stronger to the upside. “All signs are pointing to a pretty decent economic recovery [that] has been priced into the market already. The market is going to have to see a significant improvement in the fundamentals to really drive prices much above $73-$74 a barrel. That will be our top through the rest of the summer and possibly into early fall,” he says.

Chirichella adds that as long as equities continue to stay firm and as long as the dollar continues to fall, crude will stay relatively firm. “It won’t go much above $74 and won’t go much below $65-66. We’re in the trading range.”

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