The march to $150 per barrel oil continues as prices are now trading at another new all time high on the backdrop of a strong post inventory report rally on Wednesday. The current push up is partially a result of the Saudi Minister saying overnight that he still does not see any shortage of oil and any demand has been met by the Kingdom. He also indicated the Saudi’s have no immediate plans to further boost supply. Further underpinning the complex is whether or not the European Central Bank will raise interest rates (THEY DID) as inflation has also become the main concern of the EU. Expectations are for the ECB to raise rates. The announcement is due out at 7:45 am EST. Sweden announced an increase in interest rates this morning as inflation and slow growth grip that part of the world. As each non-dollar denominated country raises rates it further pressures the dollar and thus results in a bullish move for oil.
High oil prices are creating a doom & gloom attitude throughout the world with equities markets lower around the world this morning, oil prices higher and the dollar once again approaching all time lows versus the Euro. On a positive note demand for oil in OECD countries is on the defensive with demand reduction likely to accelerate as prices continue to march higher. It is time for the consuming world’s politicians to spend less time trying o blame somebody or something and all focus on solving the problem. As we have said on many occasions in this report the solution is broad and complex and not just based on one item. Not only must demand be curtailed in both the developing and developed world but conventional, unconventional and alternative sources of supply must be exploited quickly. If a complete portfolio approach is not taken this time next year we will likely be talking about $200 oil and possibly $6 gasoline heading into the July 4th holiday weekend.
The market remains emotionally charged and ready to surge on any bullish news item irrespective of how remote or insignificant it may be. We do not see any signs that the major uptrend is anywhere near subsiding as the only positive news coming out of the complex is elasticity of demand has taken hold in the developed world and may be slowly emerging in the developing world. Aside from that we need to ask the question as to what else is happening that will cause oil prices to recede in the near term? Certainly not the politicians running around the airwaves blaming each other. As long as the market participants remain convinced that an event (whatever that event may be) that could disrupt supply is possible and the surplus capacity cushion remains minimal at best prices will remain biased to the upside.
As much as it has taken a series of events over the last 30 years for the current oil crisis to emerge it is going to take a series of strong events convincing the industry, speculators and investors that prices are under control and not likely to move higher. Unfortunately I do not see the right series of events unfolding anytime soon and as such I do not see the market making any major/significant downside correction in the short or possibly medium term.
As we head out for the long holiday weekend in the USA it is time to forget about oil for a few days and enjoy our time with family and friends as we Americans celebrate the 232nd birthday of the USA. I will not be writing a morning report on Friday and will resume on Monday morning.
Currently prices are strong as the dollar weakens in anticipation of an ECB rate hike.
Current Expected Trading Range
7/3/08
Change
Upper
Lower
From
Resistance
Support
7:26 AM
Yesterday
Aug WTI
$145.39
$1.82
$150.00
$130.00
Aug HO
$4.1262
$0.0547
$4.0000
$2.7100
Aug RBOB
$3.5835
$0.0341
$3.7500
$3.0000
Aug NG
$13.542
$0.153
$13.500
$11.000
Euro/$
1.5838
0.0010
1.6000
1.5200
Yen/$
0.9443
(0.0032)
1.0450
0.9000
Dominick A. Chirichella
Energy Management Institute
dchirichella@mailaec.com
www.energyinstitution.org
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