From the March 01, 2010 issue of Futures Magazine • Subscribe!

Crude conundrum

Crude oil hovered around $75 a barrel in early February, and analysts expect it could head slightly down over the short term.

“Crude oil has been odd. Just when you think it’s going to take off and run, it turns right back around and falls back down,” says Darin Newsom, senior analyst at Telvent DTN.

Phil Flynn, senior energy analyst at PFGBest Research, has said for several weeks that crude is headed for the $40 range once the Fed begins to exit from its quantitative easing.

However, Flynn notes that the potential bailout of Greece and heavy lending in China have given new life to oil bulls and the timing of the Fed’s exit strategy is not clear.

Spencer Patton, chief investment officer at Steel Vine Investments, says crude oil is disconnected from its supply and demand fundamentals. “Hedging crude oil and waiting for prices to rise has been something that has kept an inordinate supply of crude oil available. Crude oil doesn’t have real fundamental reason to be above $80 per barrel,” he says, adding that he expects crude to maintain a range of $70-82 a barrel through May.

Newsom sees a $67 per barrel level for crude during March. “It’s going to be difficult to push it through $67 with the time of year we’re coming up on. On the high side this summer, we’ll continue to rally,” he says.

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