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Is Oil’s Slide Done?

The economic data released Thursday was mixed, but it has allowed the U.S. dollar index to trade higher — it is nearing the 200-Day moving average at 81.33, which could keep pressure on crude oil into the weekend.

AP

The Pentagon said Thursday that Iranian warplanes fired at an unarmed U.S. drone in international airspace last week, but did not hit the aircraft. In my opinion, the news is likely to keep tensions at a higher level than in recent weeks. Unfortunately, this geo-political situation will only add fuel to the energy fire.

(Read More: Iran Warplanes Fired on US Drone Over Gulf: US.)

Many analysts believe that $84.50 is a line in the sand for crude oil. The market has been playing off of this level for the last couple of trading sessions and I would consider a close below $84.00 to be bearish in the short-term.

That said, the window for a large price drop in WTI is rapidly closing. In term of seasonal activity, corporations and businesses tend to start hedging their 2013 consumption by buying contracts out to May 2013 and this could provide some price support.

Ultimately, we expect volatility to remain high through 2013 and my year-end $79.00 WTI target may not be reached.

(Related: OPEC Says 2013 Oil Demand May Underperform.)

So what's the bottom line?

If you are short, you may want to consider a long option play going out to at least May 2013 to protect against the threat of higher prices to come.


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Reuters contributed to this report

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