Crude's Range Is Intact

 | Jan 17, 2012 | 10:00 AM EST
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Crude oil futures on the New York Mercantile Exchange have popped back above the major psychological resistance level of $100 a barrel to start the new trading week. Fresh bullish economic data out of China and the eurozone provided a boost to most commodity markets Tuesday. The crude oil market got an added lift from more saber-rattling coming out of Iran.

Oil prices last Friday dropped to a fresh three-week low of $97.70 a barrel, basis the nearby February contract, on a corrective, profit-taking selloff that came amid reports the European Union may wait six months until deciding to impose economic sanctions against Iran -- namely, halting purchasing of Iranian oil.

The inflammatory rhetoric coming out of Iran and the U.S. assertions it will not allow the strategically important Strait of Hormuz to be closed have put a floor under the crude oil market and have likely added around a $10-a-barrel premium to the price of crude oil the past few weeks. Iran's most recent volley is a threat to Saudi Arabia, if the Saudis step up their own crude production should Iran's oil be sanctioned.

More upbeat economic data coming out of China and the European Union this week are combining with the better statistics coming out of the U.S. to suggest stronger demand for liquid energy coming from the major industrialized nations during 2012.

While the Nymex oil market bulls are enjoying the overall near-term technical advantage, they do lose their upside traction once prices move much above the key $100 level. For the past eight months nearby crude oil prices have challenged technical resistance at the $105 area on several occasions, but have failed to push above it. Nearby Nymex crude oil prices did drop to a low of $74.95 in early October but have made a strong price recovery since. For the past two months prices have been trading in a choppy and sideways trading range at the higher price levels near the $100 mark.

Barring a serious escalation in the eurozone debt crisis (which would be bearish for the crude oil market) or a military confrontation in the Persian Gulf or somewhere else in the world (bullish for crude), look for nearby Nymex crude oil futures to continue to trade in a choppy and sideways $15 range bound by technical resistance at the $105 area and by technical support at the $90 area -- with brief spikes above or below that range not surprising.

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