Oil Finally Pierces $75 Level

As gold continues to establish new record levels almost daily (currently above $1,070), oil has finally managed to cruise above the $75 mark thanks in large part to the beaten down dollar. Oil reached as high as $75.15 in midday European electronic trade on the New York Mercantile Exchange, and currently sits at $75, a gain of 85 cents.

Oil prices have been mired in a relatively very narrow trading range, between $65 and $75 since May, as speculators looked for reasons to take the commodity one direction or another. During much of that five month period, oil fluctuated daily with equities and economic developments.

Much of the analyst sentiment during the range trading suggested that supply and demand economics implied there was more potential for downward pressure on oil. However, a weakening dollar in recent weeks, combined with forecasted pick up in oil demand for the busy holiday season have caused some analysts now to predict higher crude prices. Goldman Sachs expects $85 per barrel to be reached before year's end.

Oil demand has been stagnant since the economy went into recession. Consumers have been restricting travel and businesses have cut back on transportation and travel expenses. However, optimism is not building for the potential of a relatively normal holiday season pick up in retail business. This means that more products are going to be shipped to and from retailers, resulting in greater fuel consumption and oil demand.

Until recently, a lack of demand for oil-based products has coincided with historically high levels of US crude inventories. This is similar to the problem in the housing market that has kept home prices down for so long ? over supply and limited demand.

Now that normal economic factors are starting to favor higher crude oil prices, and with oil having broken out from its long trading range, it seems inevitable that crude will at least carry some speculative momentum higher in the near term.

One thing that remains to be seen is how long oil traders will rely on economic sentiment and equities to dictate oil direction. During much of the last several months, the evolving economic landscape and the movement of the dollar have been major catalysts. It remains to be seen if these are still going to have as much of an impact once the economy is stabilized and supply and demand variables take more hold on oil speculation.