Crude Oil Futures Winter Outlook

By Blake Robben  ISSUE 202 | FEB 2003

The threat of war, disruption of supplies to the United States and rising demand has supported crude oil prices recently. However, March futures must stay above $30 per barrel for our bullish stance to continue.

Certainly, there is precedent for crude oil prices to rally in the face of war in the Middle East. In 1980, crude oil prices doubled to $40 per barrel due to the Iranian revolution and war between Iran and Iraq. Ten years later, in 1990, prices hit that level again when Iraq invaded Kuwait. Prices remained high as the United States attacked Iraq. However, once the market knew that Saudi Arabian oil was safe, oil prices collapsed to $20 within two days.

The current situation now encompasses another threat of war with Iraq as well as an oil-worker strike in Venezuela, a major exporter to the United States. These factors have propelled prices to two-year highs as the current March futures contract now stands above $32. In addition, rising demand from China and India has kept prices above OPEC's upper price band of $28.

To counteract the supply disruption from Venezuela, Saudi Arabia has pledged to increase output by 1.5 million barrels per day beginning February 1 (for arrival in U.S. ports about six weeks later). The market sold off to test the $30 mark soon after this announcement by Saudi Arabia, but quickly rebounded to current levels at around $32 per barrel.

Furthermore, from a technical point of view, March crude oils needs to hold the $30 mark to keep bullish forces alive. Any decisive close below $30 shifts the tide to a bearish tone and should be construed as a confirmation of the downside move. At that point, I would consider initiating short futures positions and bearish option strategies.

Clearly, a market as volatile as crude oil demands close attention to both the fundamental dynamics as well as the technical picture in order to take a calculated risk when speculating on future price direction. For daily updates and short-term market analysis on the ever-changing crude oil market, please call me directly at 800-266-0551 from 7 a.m. to 5 p.m. (Chicago time).

Blake Robben is a senior market strategist with Lind Plus®.

Laura Oatney is editor of LindForum. She can be reached at editor@Lind-Waldock.com.

Futures trading involves risk of loss.

© 2003 Lind-Waldock, A Division of Man Financial Inc. All Rights Reserved. Futures Trading Involves Risk of Loss.