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Terranova: How High Will Oil Climb?

Friday, 8 May 2009 | 6:10 PM ET

On Friday, crude oil ended trading with its third consecutive day of gains.

For the week oil has jumped $5.43 per barrel or about 10%. The move comes despite a huge supply glut; inventories are at their highest levels since 1990.

For many investors, this sudden and steep move in oil prices feels some what irrational and eerily familiar.

It was last year at this time when the market was ripe with predictions that $200 oil and $5 gas was the new norm. Of course it didn't go that way, but oil did march right up to $144 a barrel in early July. And we’re still reeling from the damage it did to the economy.

Now it’s one year later and oil prices are moving up again. But unlike last time, there’s at least one big difference – the man in the White House.

Unlike George Bush who was rather laissez-faire, Barack Obama is anything but unwilling to intervene in the name of economic stability.

In fact, Fast Money Trader Joe Terranova thinks the White House's commitment to stability is enough to prevent oil from climbing a whole heck of a lot higher. And as a result he thinks it's entirely possible oil can't get much above $60.

Here's why:

The Obama Trade: Energy
The Fast Money traders discuss whether President Obama will allow higher oil prices.

As the price of crude gets north of $60, we’ll see prices at the pump increase too -- and they'll reach a level that will give consumers pause, muses Terranova. That could impact the economic recovery.

In addition, demand isn't driving oil prices, he adds, it's index buying that's driving prices higher.

Now President Obama isn't someone who likes speculation in his economy and he's well aware of how fragile the current signs of stabilization are.

If oil prices aggressively move higher, it wouldn’t surprise me to see Obama release oil from the SPR -- and if that happens, the price of oil and gasoline drop quickly and dramatically.

Of course this is just a theory. But Terranova has been trading oil for a long time.

So before you bet that oil continues to make new highs, you might want to consider if Obama will even allow it!

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Trader disclosure: On May 8th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (AAPL), (TGT), (WFC), (GS), (PCLN), (GE), (SDS), (AGU); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman's Firm Owns (MSFT) And Is Long (MSFT) Put Spreads; Finerman's Firm Owns (UNH); Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Finerman's Firm Is Short (IJR), (SPY), (MDY), (IWM), (USO), (BBT); Terranova Owns (XBI), (GENZ), (ABT), (BP); Terranova Is Short (XOM) Call Spread; Terranova Owns (MS) And Is Short (MS) Calls; Terranova Owns (DIS) Call Spread; Terranova Is Short (JPM), (BRCM), (POT), (X), (WYNN), (JOYG), (HES); Terranova Is Short June Crude Oil Futures; Terranova Is Short June Natural Gas Futures

Terranova Works For (VRTS): Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.: Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO

Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (CAL), (DLR), (EPR), (EXR), (IGE), (MEE), (DBC), (DBV), (DBA), (SKT), (UA), (CLB), (WBMD); Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co; Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

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