We are actually glad that IEA will not be wasting more oil reserves as it seems oil may be running into larger economic forces. I am referring to China’s slowing as reflected in their Purchase Manager’s Index (PMI) that fell below 50, and a slow growth environment in the developed world which should lead to a drop in demand. If $100 is breached, the May high of $102 is the 61.8% Fibonacci retracement from the 2007 high to the 2009 low and might act as resistance once again.
The wild card in the oil market is the U.S. dollar. Oil is priced in dollars and therefore is likely to rise if the dollar continues to move lower. If our politicians cannot come to an agreement on the debt ceiling, or they kick the can down the road, we are operating under the assumption that the dollar would experience significant selling. Under this scenario oil could easily rise to the April high of $113 again. Just one more reason we need the stalemate in Washington to end.
