Nymex Crude Back Above $100, for Now

 | Jan 03, 2012 | 12:00 PM EST  | Comments
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Crude oil futures for February delivery on the New York Mercantile Exchange surged back above $100 a barrel on Tuesday, the first trading day of the new year. More saber-rattling between the U.S. and Iran and some better economic data out of China lifted crude prices. However, if recent history once again plays out, Nymex crude prices will stall out just above the pivotal $100 mark.

News reports said Iran test-fired a couple missiles in the Persian Gulf. This comes in the immediate aftermath of the U.S. slapping some more economic sanctions against the Iranian regime. Iran's nuclear ambitions and the West's determination to thwart them will be key themes during 2012. Look for this important geopolitical event to remain near the market's front burner for some time.

The U.S.-Iran tensions will likely keep selling pressure in the crude oil market limited, to varying degrees, for most of the new year. One-third of world oil exports are shipped through the narrow Strait of Hormuz, which is right in Iran's back yard. Should any military confrontation occur between the U.S. (or Israel) and Iran with shots fired, Nymex crude oil prices would be likely to spike to close to $150 a barrel.

Aside from the geopolitical front, the demand fundamentals in the energy market are stable to improving. China's manufacturing sector showed improvement in the latest report from the huge energy-consuming nation. The commodity markets, including crude oil, have paid very close attention and have been significantly affected by China's economic data in the past couple years. The U.S. economy is also on a better track to recovery, as evidenced in recent economic data from the world's largest energy consumer.

The European Union's sovereign debt and financial crisis has been a major weight on the crude oil market and other commodity markets in recent months. The E.U. debt debacle is a major reason why crude oil prices tend to stall out once they move above the $100 mark. Recently, the E.U.'s financial mess has moved to the market's front burner at least once every couple weeks. This quickly prompts a "risk off" trader/investor mentality that quickly takes the wind out of bullish commodity traders' sails. There is just enough fear in the market that the E.U. debt and financial crisis could spill into a worldwide debt contagion that could then send the world's major economies back into recession.

Look for nearby Nymex futures prices to trade between $90 and $105 a barrel for at least the first quarter of 2012.

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