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'The big boys don't know' where crude is headed next

These days, there’s one thing that’s predictable about oil prices: They’re unpredictable.

Crude rallied on Wednesday, despite the fact that inventories increased 8.4 million barrels to nearly 495 million barrels, a record high. The price of a barrel of West Texas Intermediate crude (CLH16.NYM) settled at $32.30 per barrel, or about 21% higher than last week’s lows.

According to Ira Epstein, managing director at Linn & Associates, the disconnect has to do with some trying to play a risky game in the oil markets.

“You're getting to a point where people are trying to pick bottoms,” he said. “When people start picking bottoms like this just because you're at a number, be careful.”

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Epstein likened the rapid decline in oil to the rapid rise in another major commodity.

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“Gold at $1,900, everybody started talking $2,400,” he said. “When we got down to $30 in crude, they started talking $25 and then the teens.”

But Epstein is also cautious about bold upside predictions from major players in the oil market. He singled-out T. Boone Pickens for his prediction last summer that oil would close 2015 at $70. Epstein is also critical of Continental Resource’s (CLR) CEO Harold Hamm’s recent forecast of oil prices at $60 by the end of this year.

“If he is so bullish, why is he cutting exploration?” said Epstein of Hamm. “The big boys don't know. We're in an area of uncertainty. And that area of uncertainty means don't pay attention to them as much as you do to yourself and the charts and what you're reading. Their benefit is to talk up their stock price, not what's going on in oil.”

Epstein expects the crude’s market will continue to be dominated by oversupply. For that reason, he makes his own prediction, albeit a modest one, on oil prices for the near-term.

“Probably no higher than $35 and a retest of $27 is likely,” he said.

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