Oil U.S. Light Crude Futures ($67.57)

I have been talking about a $70 intermediate term price target for oil since mid-August, and now we have seen it. I also suggested that once a $70 top was in place (it may take several weeks to complete a top), we could see a meaningful correction. Steep uptrends tend to spawn quick knee-jerk corrective adjustments as they proceed. These setbacks have dropped the price of crude below its rising 200-Day Moving Average twice during the past year. If it happened again in the weeks ahead, we could briefly see the $55 area.

Beyond the intermediate term, the longer term price momentum models show a powerful uptrend functioning in an overbought environment. This can be expected to persist until an intermediate term correction is abrupt enough to alter longer term price momentum calculations.

It took the tragedy of Hurricane Katrina to push oil to my $70 target. I don't make any attempt to forecast the events that might unfold to justify my price targets. However, if I were to speculate just once on why we might correct from here, I would guess that a short term price setback might occur if the massive oil and gas pipelines out of New Orleans return to full capacity earlier than expected.