CNBC Oil Prices Back to $100 a Barrel? Not Likely, Many Traders Believe

Oil prices have jumped more than 70% since February on expectations of an improving economy, but traders say crude isn't likely to head back up to $100 a barrel anytime soon.

A year ago, oil was barreling towards a staggering $147, which translated into $4 a gallon at the gas pump. But when the financial crisis sent the economy reeling last fall, oil plummeted below $35 a barrel.

Since the low of $33.55 in February, US light, sweet crude[US@CL.1 58.5 --- UNCH (0)] has followed stocks in rallying on hopes of economic recovery. The price retreated a bit on Monday, but on Friday traded up $1.92 to settle at $58.63 a barrel, another high for the year.

Even so, traders don't see oil rising much beyond $70 a barrel. They argue that with the economy posting only tepid signs of recovery, the dollar holding fairly strong and demand remaining relatively low, there seems to be little impetus for a rise back towards last summer's record-breaking highs.

"Those levels around $60 or $65 could be attainable even though the fundamentals are bearish," says oil trader Daniel Cronin, senior commodities analyst at PitGuru. "Unless we have a real rip-roaring equity market I really don't see crude higher than $60. I don't see any kind of fundamental reason for it other than speculation like we saw last year. That's not the same game anymore."

That should mean good news for companies that spend a lot on sending their goods long distances. And that effect should transfer over to the stock market at some point.

"There's potential for pretty good profit growth for the next 18 months," says Kurt Karl, chief economist at Swiss Re. "The market will eventually feel that in a much fuller way."

Consumers, of course, are already feeling the benefits of lower gasoline and heating oil costs.

The drop in oil prices provides a saving of $160 billion to taxpayers, amounting to more than 1 percent of gross domestic product. That in turn helps consumer-based companies that benefit from more consumer spending.

Some believe the fall in energy prices to levels more accurately representing market value already has at least partly contributed to the gains in stocks. more...