Crude is starting to drop as predicted

Crude oil prices fell to a low of $67.77 on Monday and remained under pressure this morning, just pennies from a key support level. The close of the summer driving season and calm tropical winds in the Gulf are putting pressure on oil prices.

In addition, diplomacy between the U.S. (through the U.N.) and Iran over its nuclear intentions is quelling fears of a disruption in production.

The key support for crude is the 200-day moving average, which is around $67.50, Reuters points out. If crude drops below $67.50 look for traders to start selling the commodity.

"The market has been very technical. If we break these levels, there is room to go much further down," said Olivier Jakob of Petromatrix to Reuters. "It's hard to see where support is going to come from."

The only thing that could buoy oil prices is a change in these factors. For instance, a new hurricane emerging and threatening the Gulf. However, this year's hurricane season has been calm compared to last year's devastating blows from Katrina, Wilma, and Rita. A tropical storm developing in the Atlantic right now is not expected to come close to Gulf oil platforms.

The wild card is Iran. If Iran refuses to cooperate with the U.N., U.S. oil consumers could pay the price.

"Barring some developments in the Iranian nuclear dispute, the market is likely to remain range-bound for today's session with a base of $66 a barrel," said Paul Harris, an analyst at Bank of Ireland Global Markets to the Associated Press.

Another short-term threat to low oil prices is a surprise in the inventories data tomorrow. Analysts are expecting both oil and gas supplies to drop. A Reuters poll shows that experts are looking for a 400,000 barrel fall in gasoline inventories and a 1.4 million barrel decline in crude stockpiles when the government releases its latest data.

Meanwhile, a Dow Jones Newswires poll of analysts predicts crude oil stocks to fall by 1.1 million barrels and gasoline inventories to decline by 600,000 barrels.

But, the end of the summer driving season also reduces the impact that low gasoline stocks have on the price of crude. Instead, analysts look more at the heating oil supplies as winter nears. Both Reuters and Dow Jones analysts expect a 1.2 million-barrel build in distillate stocks.

Stay tuned.

Editor's Note: