Oil Prices - May 26

[dan_s]

Since the large drop in oil prices on May 5 (caused by the increase in margin requirements), the price of oil has tested $96/bbl four times. Each time it has bounced back the next trading day.

One way to get a lot of noise out of the chart is to go from a daily to a weekly chart.

Go here for charts: http://www.cmegroup.com/trading/energy/ ... crude.html

What's clear to me is that the price of oil has reverted back to the trend line it was on prior to the NATO bombing of Lybia.

Oil prices started climbing back in late August, 2010 and the upward trend was steady until the spike late in February.

All that's happened in May is that the increased margin requirement has taken about $15/bbl of geopolitical risk premium out of the price and gotten oil back to the trend line. As intended, it drove a lot of speculators out of the NYMEX trading. Believe me, we are better off that this has happened.

I now believe oil will flop around in the $95-$105 range for the summer. If 1.4 million bbls per day of Lybian light oil stays off the market the global supply / demand balance is going to tighten. As this becomes quite clear in six months, the price of oil could really surge.