Why Crude Could Fall to $90

oil worker and derrick silhouette
Roger Milley | Vetta | Getty Images

Higher-than-expected inflation numbers from China weighed on crude oil futures Friday. Why? Well, the theory is that China will have considerably less room to ease if it is faced with inflation.

The news, of course, should negatively affect many commodity prices, but crude should feel a disproportionate effect, due to its recent price patterns. At yesterday's highs, crude had rallied almost 10.5 percent in just four weeks. The rally was largely based on a brighter global economic picture, particularly in China and Japan. A rally of this magnitude has a tendency to become crowded quickly, which can create a potential for a quick market correction. Yesterday's failure to take out resistance levels sets the table for a move down to the $90.50 area in February crude.

Traders sometimes feel the need to make a broader economic argument to satisfy their short term thesis, and in this case, it isn't difficult. Ever-increasing domestic production from North Dakota oil fields should increase supply. In addition, the Saudi Arabian attempts to limit supply and support prices is probably in response to that decreases in demand that they are seeing. Lastly, although the correlation between natural gas and crude has mostly broken down over the last few year, the recent divergence between the two has been so dramatic that it probably should not be ignored.

Read on for 10 Things You Need to Know to Trade Futures

Watch "Futures Now" Tuesdays & Thursdays 1p ET exclusively on FuturesNow.CNBC.com !

Like us on Facebook! Facebook.com/CNBCFuturesNow

Follow us on Twitter!@CNBCFuturesNow

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.