From the June 01, 2012 issue of Futures Magazine • Subscribe!

Oil tapping out

After topping out around $110 a barrel earlier this year, WTI crude oil has declined steadily, particularly throughout May. According to our analysts, some positive news from around the globe likely is behind the move.

Phil Flynn, senior energy analyst at PFGBest, says there are a couple things we need to consider in the oil market right now. “The first isn’t so much why prices are falling, but rather why did they rally so much in the first place? That answer clearly was the Iran threat. What we saw was countries preparing for the worst case scenario in Iran and hoarding supplies,” he says. Flynn goes on to say that as countries found alternative sources of oil, they realized they didn’t need Iranian oil in the first place, and so price is coming down.

In addition, he says to continue to watch Europe and warns Greece may turn into Europe’s “Lehman moment.” In the short-term, Flynn says $90 is an important number to watch. Below that, he sees support at $88.50 and psychologically at $85 with overhead resistance at $94.80.

Spencer Patton, chief investment officer at Steel Vine Investments, says we’ve seen a fair amount of geopolitical risk come out of the oil market recently when Iran allowed nuclear inspectors back into the country. “That probably pulled at least $10 of premium out of the market and has been a large part of why the market has come down,” he says. Patton expects crude to turn around and sees $90 as a possible bottom. By mid-June he expects oil to be $95-$96, but says support is at $87.

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