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Oil prices are picking up right where they left off on Friday, gaining another $1.72 a barrel, up to $68.03. We noted last week that a big reason oil has been moving so high lately was increased in optimism in the overall American economy. Two more indicators showed up today that have really got Wall Street betting on continued rising oil costs. The first is a weakening of the dollar, and the second would be signs that manufacturing is strengthening once more in China. Both of these indicators were major reasons why we saw oil spike to record levels last summer, and their emergence now could signal that oil could continue heading higher.
The dollar has been getting hit lately on fears regarding America's overall debt, and diversification by some foreign central banks that has led to the selling of the American dollar. South Korea has announced that it is looking into reducing some of its dollar holdings, and rumors have already started to spread that Russia could be the next country to announce such a move. Any sign of potential weakness in the dollar will lead people to seek inflationary protection in oil.
China is another major factor in oil prices. Their manufacturing empire is extremely oil thirsty, and if manufacturing is able to pick up substantially in China, oil demand will continue to push prices higher. We are starting to see signs that China's manufacturing is expanding, so the only real question is at what point will things even themselves out.Last summer, we had oil prices bordering on $150 a barrel, so where we are right now is still very cheap in comparison, there are some indicators that we are headed in a similar direction. Can we go as high as last summer? I highly doubt it, but what about $100 oil? Is it conceivable?
When oil was moving through the $100 mark last year, everyone thought that China and India would be able to keep up with the prices, and their large oil demand would keep prices boosted. That did not happen.
So that begs the question of just what price can demand currently support? We will continue to see a run up in prices into the summer, that is almost a definite, but analysts point out the fact that there is little evidence that the recent price jump can be sustained for too long this summer.
That would be good news to most of us, as the prices of gasoline have also been on the rise.The national average is now sitting at $2.512. A far cry from where prices went last summer, but still a big increase from where we were just a couple months ago.
How high do you think oil will go? And, what do you expect to be paying for your gasoline in the middle of July?
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Reader Comments (Page 1 of 1)
6-01-2009 @ 3:35PM
Iridium said...
The demand, even through the major expansion, couldn't even support $30 a barrel. There is no way in hell oil can even support $20 a barrel right now.
Oil is trading on an expansion that never existed and a recovery that will never happen with oil above $40.
Finding the Loch Ness monster or a giant pyramid on Mars is a better possibility than finding demand that can support the current price of oil. It doesn't exist.
The stock market has priced in a recovery and economic expansion greater than 2002-2007 that was fueled by nothing more than a phantasm of false wealth. How the hell are we going to support that kind of growth without an engine to drive it along?