Where Will Oil Go Next?

Oil is charging higher again this morning.  The Associated Press tells us that: Oil hits new 6-month high above $65

 

Why?  Oil inventories plunged in the latest EIA report – dropping by 5.4 million barrels.  It was the third week in a row that stockpiles have dropped.  However, crude inventories remain near 19-year highs.  There is no oil shortage.

The AP reports that:

Investors were also cheered by signs the U.S. recession may be bottoming out. The government reported Thursday that demand for big-ticket manufactured goods in April had its biggest jump in 16 months. It was the second increase in the past three months and came after separate data showed the number of newly laid-off people requesting jobless benefits fell last week.

It’s possible that the economy is showing real improvement, but I think it’s highly unlikely.  Instead, I believe it’s more likely that the economy is floating higher on a flood of government-backed paper.  Also, as I told you yesterday, speculation is doing more to drive oil prices higher than real demand.  Oil is the anti-dollar, and the dollar is going lower as the U.S. government tries to prop up the bond market.

 

You can read the EIA report for yourself by CLICKING HERE.

 

It would be hypocritical for me to say a word against oil speculators, since Red-Hot Commodity ETF subscribers are speculating so well on the price of oil.  I recommended the Ultra Dow Jones-AIG Crude Oil ProShares (UCO: 13.19 -0.19 -1.42%) on May 7th and again on May 11th.  That position is closing in on PT1.

 

What happens next?  Well, let’s look at a chart of oil …

Oil pushed through its 200-day moving average like Superman through a wall of Kleenex.  To be sure, momentum indicators are saying that oil looks overbought. But it can stay that way for awhile. On the other hand, look at this next chart , from August — when oil was falling like a rock, and went DOWN through its 200-day moving average …

You can see that when crude oil pushed DOWN through its 200-day moving average, it kept going lower for another two weeks before bouncing.  Will history repeat itself?

We may have a runaway train here, its wheels greased with speculative money.  As I’ve said, my target on oil is $71. But beyond that, I have other targets … $78 … even $87.  And if we get to $87 oil, that will surely lay low our zombie economy like a stake through Dracula’s heart.  Yes, I know I’m mixing my zombie and vampire metaphors.  Give me a break, it’s Friday.

 Stay tuned.

 

Here are some oil stories I’m reading …

 

Stocks, Oil, Metals Rise on Evidence World Recession Easing; Dollar Drops

 

Stocks rose, extending the MSCI World Index’s longest monthly winning streak since the credit-market seizure began, after economic reports from Japan and India signaled the worst of the global recession may be ending. Crude oil climbed and the dollar weakened.

 

Indian Expansion, Rise in Japan Production Add to Signs Worst May Be Over

 

Japan’s industrial production jumped the most in 56 years in April and India’s economy expanded more than economists forecast in the first quarter, adding to evidence that the global recession is easing.

Energy supply crunch brewing

Forget low oil prices. The worry of the moment is a spike in oil prices and how long it will take before a supply crunch sends prices soaring. And if one subscribes to the views of former CIBC World Markets economist Jeff Rubin and University of California, San Diego economics professor James Hamilton, a spike in prices could send the world tumbling back into recessionary territory, just as it is about to climb out of it.

The price of crude today and historically

With the price of crude oil on the rise, how does it compare now to the long-term average? Oil, at about $63 (U.S.) a barrel, is well below the peak of $147 it hit last summer, but the price is still substantially above its long-term average. Of course, that average depends on when you start the calculations. 

Oil to Cost $110 by 2015 on Global Rebound, U.S. Says

(Bloomberg) — Oil prices will return to $110 a barrel by 2015 as a rebound in economic growth worldwide boosts consumption, the U.S. Energy Department said. Prices, which rose to a six-month high of $62.45 yesterday in New York Mercantile Exchange trading, will continue climbing past 2015 to $130 by 2030, as India, China and other developing nations use more oil, the Energy Information Administration said today in its annual International Energy Outlook report.

 

Here’s a video to get you through to the weekend.

 

 

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