Oil prices slide toward $76 -- Are they headed even lower?

By Phaedra Friend Troy

Hitting a two-week low on a dismal job-market report, the price of oil fell near $76 on the New York Mercantile Exchange Thursday.

After climbing out of the $70 trading range last week and seeing highs above $82 a barrel, the price of oil has fallen on the NYMEX this week, hitting a low of $76.05 in intra-day trading Thursday.

While US inventories revealed a draw, an increase in the number of people filing for unemployment benefits took the wind out of the bulls’ sails, portraying that the US economy is not quite as robust as some have hoped.
“Fundamentally, the contango in the futures spreads indicates supply and demand outlook remains bearish,” said Darin Newsom, senior analyst with DNT in Nebraska. “Yes, this week's EIA stocks report showed a decline, but that is a seasonal move and not reflecting a tightening supply and demand situation.”

Typically US demand for crude increases at this time of year due to summer travel while school is out.

“From a technical point of view, the market seems to be indicating it will soon rejoin its longer-term downtrend with a fall/winter target price between $59.80 and $50.50,” advised Newsom.

Interest in the commodity waned when oil attempted a rally above the $80 mark, “not a bullish technical indicator,” Newsom added.

Additionally, Newsom points to increased pressure on the Dow Jones Industrial Average, which will increase concerns about the growth of the economy.

“If this occurs, it could slow demand for gasoline and distillates, leading to continued larger than normal U.S. crude stocks,” Newsom said.

While market bulls continue to look to positive news that the economy is improving, and thus the demand for oil will increase, this leading analyst bearishly contends that supply and demand fundamentals do not support a higher price for oil.

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