NYMEX crude oil prices surge above $86 to 17-month high on economic recovery

Crude oil prices surged to the highest level in 17 months as growth in American jobs and service industries signaled that the economy is recovering from the worst recession since the 1930s. NYMEX crude oil prices for May 2010 delivery increased $1.75 to settle at $86.62, the highest closing price since 8 Oct 2008. The contract has risen for 5 consecutive sessions, the longest stretch in 6 weeks. Crude oil has climbed 65% in the past year. Meanwhile, the S&P 500 rose to 1187.44, an 18-month high.

Oil prices traded within a range of $68-$84 in the 6 months till Mar 2010, rising as investor confidence boosted equity markets. "It's 2008 redux," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "The fundamentals don't matter until they matter very much." Prices surged to a record $147.27 in Jul 2008 and fell to $32.40 in Dec 2008 as the recession worsened and demand waned. US crude oil stockpiles posted 9 weekly increases with inventories at 354.2 million barrels, the highest level since June 2009. Prices have established a floor of $75 and Venezuela seeks a price band between $80 and $100 a barrel, Venezuela's Oil Minister Rafael Ramirez said. OPEC slashed output in Jan 2009 to prevent a supply glut, and left production quotas unchanged when ministers met on 17 Mar 2010.

- We've had a clear breakout in NYMEX crude futures since it burst through the $84 level recently, blowing past the $83.95 level that might have served as resistance if it had turned back then. Now we are on-trend to try for $90, the next potential resistance level which had served as past support for a brief period back in Sep 2008.

So far everyone is yelling "global economic recovery" and even NBER, the semi-official agency that calls the beginnings and endings of recessionary periods, has joined the chorus chiming in and announcing the end of the Great Recession. Far be it for me to argue with the trend, though the few still in the contrarian community are aware that the economic fundamentals are as rotten as they have ever been - or actually worsening and threatening to hit a Debt Wall in the future with interest rates rising off the lowest possible values of zero or nearly zero.

All this will take some time to play out however, since interest rate trends take years, even decades to develop. In the meantime, I am long - and going longer - on crude oil positions, including ETF's, ETN's and futures derivatives, and will ride the trend as far as it might go.

(2010-04-06 13:11:57 SGT) [Energy] Permalink

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