Are You Ready for $78 Oil?

Most economists see recession ending in ‘09

More than 90 percent of economists predict the U.S. recession will end this year, although the recovery is likely to be bumpy.

XX Sean’s note – I think they’re wrong.  Leading Economic Indicators have turned up, as I’ve written about in my May 15th Uncommon Wisdom Daily column (Gain, Pain and Profit!).  But that’s because the government is throwing money at problems.  When the money flood ends, the economic drought begins anew.

Still, the economic bullishness has been very positive for oil prices.  A weekly chart, using standard Fibonacci retracements, gives us a target of $78.

There are many ways to arrive at an oil target price, of course.  My conservative price target remains at $71.  Another method I use gives me a price target of $87.  Will we get that high?  I don’t know.

I do know that we are playing this trend in Red-Hot Commodity ETFs, and will continue to do so as long as we see stories like the following … 

Oil rises to 6-month high above $63

Traders will be eyeing an OPEC meeting in Vienna on Thursday. Saudi Arabian Oil Minister Ali al-Naimi has said the Organization of Petroleum Exporting Countries is unlikely to add to 4.2 million barrels a day of production cuts the cartel has announced since September.

 XX Sean’s note:  Is it speculation?  Of course!  Read this next story …

Are Wall Street speculators driving up gasoline prices? (Again?)

Big Wall Street banks such as Goldman Sachs & Co., Morgan Stanley and others are able to sidestep the regulations that limit investments in commodities such as oil, and they’re investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation.  These investors now far outnumber big fuel consumers such as airlines and trucking companies, which try to protect themselves against price swings. The big investors are betting that the economy eventually will rebound, that the Obama administration’s spending policies and Federal Reserve actions will trigger inflation and that oil prices will rise.

XX Sean’s note — But what about the falling energy use in China that we hear so much about?

China says data showing lower energy use signals economy changing, not slowing further

SHANGHAI (AP) — China is defending the quality of its economic data, arguing that figures showing declines in energy use mean the economy is changing, not contracting. Data on China’s electricity consumption have long been used as a benchmark for industrial activity, given the often haphazard nature of other measures. But as the economy shifts toward services and less energy-intensive manufacturing, this practice may be misleading, the National Bureau of Statistics said in comments carried by state media Tuesday.

XX Meanwhile, China’s FUTURE energy fundamentals look very bullish …

China’s car-driven oil demand to soar - think-tank

BEIJING - China’s oil demand will increase by up to one third by 2015 as car ownership grows fast from its current low base, an executive at a think-tank run by Asia’s top oil refiner, Sinopec Group, said on Saturday.

XX If anything is going to spoil the party for oil, it will be the narrowing contango play in the oil markets.  Stay tuned.

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