The dollar drops, oil rocks! Libya burns, Japan shakes, Nigeria's nervous, Portugal bails, Bahrain bubbles and now China troubles. Do you need any more reasons for oil to go higher? Well the oil market sure does not, so let's get started going over the reason why oil is taking out key resistance from that fateful year of 2008.
You have the world out of balance in many ways. Some geopolitical and some economic and it's all conspiring to drive commodity prices again to the hemisphere. Oil surged on reports that NATO confirmed that forces loyal to Moammar Gadhafi were able to get a Libyan oil field burning. This raised concern that Gadhafi may attack oil fields as rebels are having some success selling oil to fund their revolution. This increases the risk that the sweet Libyan oil will be at greater risk of being lost for some time.
The other North African producer that can produce that light sweet crude is Nigeria. The oil market rallied on news that the Nigerian election that was scheduled for this weekend has been delayed. Nigeria was calming the Brent market somewhat but fear that this election might stir more unrest is making the trade very nervous.
Japan had another earthquake that sent the markets in a tizzy. The yen surged and stocks dropped on fears of a new chapter in Japan's nuclear nightmare that ran through the markets heads. After it was reported that the Fukushima Daiichii Nuclear power plant suffered no more damage, the markets calmed down. Yet for crude the situation in Japan is bullish. With every shake in Japan it will work against nuclear power increasing the expected increase in oil and gas demand.
The Portugal bailout may have slowed the euro temporarily, or perhaps it was buy the rumor, sell the fact on the EU interest rate increase. Still with Europe raising rates and the Fed still printing money, the dollar is looking weak in comparison. The budget impasse is not helping the dollar. Obama seems to have lost touch with the common man as gasoline prices are cutting into the consumer's pocket books and the President's popularity. The President jokingly told one questioner about gas prices that, "If you're complaining about the price of gas and you're only getting 8 miles a gallon, you know, you might want to think about a trade-in."
It is obvious that the President is not "feeling our pain" at the pump and seems that somehow he is unconcerned about the impact that this might have on the economy. The truth is that he could help gas prices dramatically by sending a message to the market that he was going to get the budget under control, quit spending money and reduce the deficit even more then the Republicans are asking for. If he led on that issue he would take the pressure off of the Fed and they could quit printing money, the dollar might rally and oil might fall.
In China signs of unrest are starting to reappear as well. In North Africa and the Middle East it is called the Arab spring, in China it is called the Jasmine revolution. China is mounting a crackdown on dissent and the internet, yet the Jasmine discontent keeps popping up.
In Bahrain reports of the government going house to house and arresting people and people disappearing is raising concerns that Bahrain could boil over this weekend. In Syria a government crackdown on dissent was unnoticed by Iran perhaps because they were too busy cruising Bahrain. The world is wacky and will look even wackier as we head into the weekend.
In an interview I did with Eric Rosenbaum at The Street, he wrote, "Yet equity and commodities analysts were coming back to the technical trading and psychological triggers for action in digesting the latest move up in crude. The comparison between the fresh highs in the price of U.S. crude versus the Sept. 2008 crude oil prices before the financial crisis ensued, isn't just an academic exercise, according to Phil Flynn, market strategist at PFG Best. The PFG Best strategist, who recently bet on the move up from $108 to $110, said there could be a short pause here, but likely only a short pause as was the case before crude oil moved up from $108 to $110. The next key level is $111, and it's key because if crude oil can hold $111 it makes a long-term target of $120 a more reasonable assumption. ‘That's not a crazy prediction, that's a technical prediction,’ Flynn said.
“The PFG Best strategist said the last time the oil trade and the market were in this territory was back in September 2008. ‘Technical trading follows the saying, 'You meet the same people on the way up as you do on the way down'’ Flynn said. ‘You get the same resistance on the way up as on the way down,’ Flynn explained. During the week of Sept, 26, 2008, U.S. crude oil hit $110.31, and that was the ‘last gasp’ rally for crude oil before it tanked and the largest peak to valley trough in the oil market ensued. Flynn noted that after the summer 2008 high crude price of $140, crude tanked and it was only in late September 2008 that crude oil rallied before heading even lower. ‘In September 2008, crude oil failed miserably at holding the $110 level and so is this the last gasp of a bull market, the last resistance point before we pull back?’ Flynn asked. He concluded that if oil moves up to $111 from here it's an important milestone."
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.
