Crude Oil Surges Towards $100 Barrel

Crude oil surges towards $100 a barrel, rallying nearly 3% to a new all-time high Tuesday, joining a broad based commodities rally, boosted by expectations for a drop in crude inventories and continued weakness in the dollar.

Crude for December delivery rallied $2.72 at $96.70 a barrel on the New York Mercantile Exchange. Earlier, crude posted a new record high of $97.

“What a rally,” said Phil Flynn, an analyst at Alaron Trading. “What a difference a day makes. This volatility is enough to give you vertigo.”

A day earlier, Monday, crude oil fell $1.95, or 2%, to close at $93.98 a barrel.

“What’s driving us today is a rebound in the stock market and more weakness in the dollar. It seems that this market is so focused on the outlook of the economy and it’s using the stock market as a gauge for that,” Flynn said.

“Tomorrow, we get the inventory numbers. We’re looking for a draw in supplies and that’s adding support,” Flynn said.

“Crude oil has shown remarkable resiliency, as price corrections continue to be shallow and short-lived,” said John Kilduff, an analyst at MF Global. “Doubtless, even though the market retains the technical capacity to stage a more extensive price correction, participants are probably very reluctant to press the short side of this market ahead of this week’s inventory reports.”

“Expectations are for a considerable decline in crude stocks, largely due to recent disruptions in Mexico’s oil shipments,” Kilduff said.

On Wednesday the U.S. Department of Energy and American Petroleum Institute will release two separate reports on energy supplies. Energy analysts surveyed by Dow Jones expect crude oil inventories to show a decline of 1.6 million barrels during the week ending Nov. 2. They expect a rise in gasoline inventories of 200,000 barrels and a drop in distillate supplies of 800,000 barrels.

“It looks as though oil is getting support from the weaker dollar, but probably more from concern about tomorrow’s EIA [Energy Information Administration] report,” said James Williams of WTRG Economics. “Crude oil prices have been in backwardation for several months giving refiners little incentive to maintain high stock levels.”

The crude oil bull is alive and kicking. How it will act as it hits the $100 level will be interesting. Usually a market that hits a psychologically important level, like $100 a barrel crude oil, will back off a bit once the number has been hit. However, much like the Euro at 145.00, the retracement may be small and short lived.  It will just keep on trying the level until a clear breakthrough has been accomplished.

Note that the Euro, after several attempts and then small back offs,  punched through 145.00 decisively today and is now trading at 145.51.

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