| From howestreet.com: Under $119, oil is trading decisively below the 100-day moving average for the first time in 15 months. The 100-day MA has provided key technical support to oil during this bull run, and now that it has been breached, $110 is the next level of support. If $110 falls, support would next be found at $98 and then $87. Although $147 oil is imbedded in our recent memories, and a lot of people believe oil prices can only go higher, let s not forget that crude was trading at $50 a year and a half ago and it was actually below $10 in 1999. Certainly $10 oil didn t make a lot of sense, but neither does $147 oil. The marginal cost of producing a barrel of oil is $60 to $70 depending on the grade and source. Typically, speculators aside, the market price will trend towards the marginal cost of production.
And let's not underestimate the role of speculators in running up oil prices. In a CFTC report yesterday, it was revealed that speculators controlled 48% of the NYMEX crude futures contracts as of July 15th. Certainly if the speculators can chase oil prices a lot higher than warranted by economic fundamentals, they can just as easily cause oil prices to collapse. In another story yesterday it was interesting to read that a major energy trader SemGroup LP has filed for bankruptcy after suffering losses of $3.2 billion on oil futures and derivatives trading. Who says there s no justice in the markets?..... Full Article: Source |