Oil prices have once again moved higher today, spurred on by government data that showed larger than expected declines in inventories last week. Prices moved up as high as $82.51, but have since pulled back slightly to $81.95, up $0.44 on the day.The U.S. Energy Information Administration reported earlier today that last week U.S. crude stocks fell by 3.8 million barrels, which was was almost double what analysts had been expecting to see. Prices are now up around 33% since the start of the year, and after trying to guess for so long if we would see $80 oil, we are now left wondering how quickly we are going to be seeing prices head up to $85 a barrel. My guess is that we will be there within a week.
OPEC members have to be loving the recent price jump. The oil cartel did save a little face last week when it decided to raise its output by 500,000 barrels a day, but many read through that decision as nothing more than empty words promising too little, too late. It is true that even before OPEC decided to lift its quota that the group was already producing above its prior quota levels, so many were left wondering what impact last week's decision would have on the market. Typically you would expect such a decision to result in lower prices, but all it accomplished was pushing prices even higher.
On top of the lack of faith traders have in OPEC, prices are also rising in reaction to yesterday's rate cut by the Fed. One of the main hopes from the cut is that it will help give the economy a boost and increase corporate growth... if this premise holds true then oil demand should grow as well, giving oil bulls one more reason to push up the price.
Over the past year I have written a lot about oil prices, and one of the comments I hear the most is that oil may be trading at historic highs, but when you consider inflation into the equation we are still under record prices. As inflation adjust highs for oil are figured to be at $90 a barrel. This record was set in 1980 at the onset of the Iran-Iraq war. As prices start to inch their way up into the low and mid $80's we have to start to wonder what is it going to take for the precious crude to blow through the $90 mark.
If you think about it, it really wouldn't take a whole lot to see prices rise up to $90. The deeper we head into hurricane season the greater chance that a storm with the power of a Katrina or Rita could hit the gulf coast and send prices skyrocketing.
Another factor that we are going to have to start paying attention to is heating oil demand in the upcoming months. As the winter months settle in, there will be increased demand across the nation, further applying upward pressure to prices.
A third factor that could lead to higher prices would be some geo-political unrest breaking out. Conditions around the globe continue to be ripe for any such event. Just remember that it was the Israel / Hezbollah conflict last summer that resulted in prices hitting highs last year.
Any of the above factors could happen at any given time. Actually... all three are bound to happen. It isn't a question of if, but more a question of when, and how severely they will come once they do. Any one of the possibilities would push prices higher, and if two or more hit at the same time... watch out... $90 oil will be here before you know it.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer
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Reader Comments (Page 1 of 1)
9-20-2007 @ 12:28PM
MTfunds said...
UMMM......oil is up because it's a depression proof commodity. We all still have to drive to work as long as we still have jobs. When oil and gold go up, it's kind of a red flag.