NYMEX crude oil hits $139.89 record despite Saudi pledge to increase production

This article belongs to the NYMEX crude oil price records story arc.

cbsnews.com :

Crude oil futures hit a record near $140 a barrel Monday [16 Jun 2008] as investors shrugged off Saudi Arabia's promise to boost production and instead focused on a weaker dollar. Light, sweet crude for July delivery soared to a trading record of $139.89 on the New York Mercantile Exchange [NYMEX]. Also supporting prices was an overnight fire at a StatoilHydro drilling rig in the North Sea which could affect 150,000 barrels of daily oil production. The oil minister of Saudi Arabia, the world's largest oil producer, said that the government will increase its oil production to 9.7 million barrels a day, with a cumulative increase of 500,000 barrels over the course of June and July. The latest promise of a production increase by the kingdom was largely ignored by traders amid strong global demand and falling production elsewhere.

- So much for the Saudi pledge to increase their oil output. I had suspected as much myself as it is widely known in the peakoiler community that they have little real spare capacity, and whatever spare capacity they do have consists mostly of Saudi Heavy Crude, which being heavier and harder to process, sells at a discount to the highly desired conventional light sweet crude. Besides, refineries especially in America are not geared to process the heavy crude oil grades and are already running at maximum capacity. Thus, if we look beyond the rhetoric and political posturing, an extra 500 kbpd of heavy oil would not have very much impact in the real world.

From a technical analysis point of view, the charts look pretty bullish. NYMEX crude oil has just completed a raised flag or pennant formation between the $130 to $140 range, and has broken out to the upside, though not quite decisively as yet. Some folks, citing more exotic TA methodology, had doubted the raised flag formation and were looking for a downside failure, but I tend to agree more with the classic style myself, and this formation is straight out of the textbooks.

$150 oil is now a matter of when, not if. The raised flag is a continuation pattern and if it holds out, we could probably expect $150 to be reached some time in the following weeks. There might still be a technical correction and if that happens, for the shorts as well as longs looking to make an entry, the support levels remain at $130, $120, $110 and $100. The resistance levels are what the longs are really shooting for, and these are expected to be around $150, $180, $200, $300 and well over $400.

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