Why Oil Will Head Higher 33 comments
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2008 brought about mixed emotions. On one hand we had cheaper gasoline than we’ve seen in many, many years (the good). Then we had the economy sliding off the cliff (the bad) and finally the unemployment rate shooting through the roof (the ugly). Ouch!
So everyone was glad to see gas go down from $4 a gallon to a buck and change…however, everyone knows someone out of work now and that’s very scary!
Oil futures are predicting $60 oil by next December. I think it will at least hit that and could head even higher by then.
Some of the stimulus that the government has given to the economy will have an effect soon. However, economies are like slowly turning ships and not like speed boats. Therefore this will be a process and not as quickly as we all would like. But…it will turn the economy around.
Therefore as the economy turns upward, it will put more of a demand upon the supply as OPEC continues to restrict the supply. So the demand will increase as the supply decreases for now.
This is bringing a halt to the decline in oil prices into a sideways range and then later on, a new uptrend. This will also carry over into gasoline prices and you will see them do likewise. Check out the chart below.
Gas prices break their free fall!
click to enlarge
Any of you out there that are technical traders will note how stretched the price has gotten away from the 200 day moving average (blue line) and how the downward pressure on the MACD has been broken.
Both of these (the fundamentals and the technicals) are calling for a near term bottoming in gas prices which will likely turn into a volatile sideways range from here for a good while. Then later on in the year, we will likely see gasoline head even higher as it breaks into an uptrend once again.
$2 to $3 gasoline is coming once again! So prepare now!
After all, much of the Middle East needs $75 to $100 a barrel oil to meet their budgets. So you can be sure they will give it their best shot to get as close to that area as they can.
Therefore it won’t be long before gasoline goes into the $2 area nation wide and in the latter months of the year we will likely be back to the $2.50+ level.
When the economy is hitting on all cylinders once again, expect $3+ a gallon once again.
You see, there’s a fundamental problem out there that will take time to solve…much longer than many think. Yes, alternative fuels will eventually take much of the sting out of oil prices. However, that’s many, many years away. If America were very fast, it might affect oil in 10 year’s time.
You see, if all vehicles produced today became “alternative” to where they had little to no need for oil (more specifically gasoline), it would take at least 5-10 years from that point to get enough of the nation weaned off of gasoline. Then that’s got to happen in the rest of the world too. Don’t forget that China and India’s middle class is growing like never before. They are getting off of those bicycles and into cars right and left.
This “extra”, new demand alone is enough to ensure that oil prices head higher until the “problem” is solved with oil.
More cars hit the road all the time, here in American and abroad. Therefore demand will be driven up once again!
Also, for any of you that were old enough to be around in the 1970’s, you’ll remember that many families were “one car” families back then. You look at that picture here in America today and you see that mom, dad and all of the teenagers have their own car.
So we’ve multiplied the demand here at home and also the demand abroad has expanded. There haven’t been near enough “oil finds” to compensate for this. In fact, in the 1970’s is when we went from being a net oil exporter to being a net oil importer. Our own oil supplies at home peaked back then.
Today, America gets most of its oil from Canada. Many mistakenly think that it’s Saudi Arabia or many other places in the Middle East. We do get some from there but not the bulk of it.
However, Canada loses a lot of their incentive to pump oil out of the “oil sands” because it’s very labor intensive to get that oil out and refined. Therefore it requires a high oil price in order to justify getting the oil out since the costs of extracting it are so much higher due to it being in the “oil sands”.
So there are a number of reasons why oil will turn around and head higher, which means that gas will tag along and do much the same.
Remember, back in 1999 when OPEC cut production 6.9%, it eventually caused oil prices to double off of their lows that year. If that same scenario played out again, you could easily see oil hit $60 - $70 a barrel. Once that happens, say goodbye to “cheap gas” once again.
Therefore, you could get prepared for this in a couple of ways. The first thing to do would be to buy the oil tracking ETF (USO). That way, as your gasoline bill goes up, at least you are “recouping” some money as your oil investment goes up over time too.
The second thing to do is to make sure you are positioning yourself with a car that gets good gas mileage. If you think that you skirted the high gas “spell” with your gas guzzler, you’ll be surprised when you see it come back once again. Therefore, get rid of that “guzzler” while gas is still cheap and you stand a chance of getting rid of it. People will avoid it “like the plague” when prices rise.
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This article has 33 comments:
Because all best stock market blogs and websites are getting about 50% less visits than last year, and you know what that mens?
It means that we are in very serious economic collapse that will make many people mostly from middle class very poor and majority of poor very slim.
If you think few billionaires will make for the lost gasoline demand during this 1929 Part II crash, then think again.
On Jan 06 10:59 AM 1977°C wrote:
> Oil will not go to 60$ not in December 2009 and not next month, and
> you know why?
> Because all best stock market blogs and websites are getting about
> 50% less visits than last year, and you know what that mens?
> It means that we are in very serious economic collapse that will
> make many people mostly from middle class very poor and majority
> of poor very slim.
> If you think few billionaires will make for the lost gasoline demand
> during this 1929 Part II crash, then think again.
Thanks for your comments even though we disagree. That's what makes a trade....each trade needs two sides...a buyer and a seller (or a short seller).
On Jan 06 11:00 AM 1977°C wrote:
> forgot to add why demand for financial information is down 50%, because
> people lost hope.
If we are headed toward depression scenario than everything collapses..
oil..gold...equities.....
it's scary but that is one of 3 or 4 scenarios one must eye...
We could go "W" recession towards summer or fall as well.
Personally, I think oil has bottomed....geopolitic... concerns...
if oil stays low than we can bank on world war III in some modern
form....collapsing world economies and resource requirements are
major concerns....of course that would be bullish for oil...
Best scenario is keep oil at $40-$60...we need the producers to stay
afloat and consumers with affordable pump prices..
This is why guys like Jim Rogers are buying up oil once again. I've personally also bought up the oil tracking ETF too (USO)...all cash, no margin...that way I don't have to "time" the exact turn around but will benefit richly when breaks out into a new uptrend.
The best time to buy is when there are the most pessimists out there. Right now, we're seeing huge amounts of that....
Thanks for your comments and for taking the time to read my articles. I appreciate it.
That's why its good to buy with cash, no margin and just buy the oil tracking ETF (USO) and not worry about rolling commodity contracts.
Thanks for writing.
On Jan 06 12:24 PM Ron2008 wrote:
> Sean, what about the huge amount of inventory hanging over the market?
> 50 mil + floating in VLCC. Cushing is getting full. That plus weak
> demand for all of 09 will keep gasoline below 2.50.
but also expect that people will take their profits as soon the rally goes down. so i don't see the gas will go higher long term soon. it will go up short-term and i still expect the worst of it.
oil price will be a lagging indicator for the bullish market. what i mean is the market will go up first before the oil will clearly be bullish long-term again.
It will be higher the price on oil whats normal, for the normal consumer its good to have low gasoline price, they get better from it, how i will imagine, most pay my energy bill, that 2 times get higher it reduce my free income with more than 20 percent, cannot save money anymore, with a cheaper oilprice i do get it better then before, so what about economy crisis?
Therefore, when more people had jobs, they could afford to pay the higher costs of gas. In other words, the paycheck is a bigger loss than the difference in the high to low gas prices.
On Jan 06 02:21 PM christiaan wrote:
> 60 dollar is a fair price for it, if you look to the past, also if
> you look to euro-dollar price now.
> It will be higher the price on oil whats normal, for the normal consumer
> its good to have low gasoline price, they get better from it, how
> i will imagine, most pay my energy bill, that 2 times get higher
> it reduce my free income with more than 20 percent, cannot save money
> anymore, with a cheaper oilprice i do get it better then before,
> so what about economy crisis?
By the way, in the last 7 days, guess what stocks went up the most? Transportation stocks. That's typical when the big institutional investors feel that an economic recovery is 6 months away...they buy up the transports and technology stocks. Well you buy transport stocks just ahead of an increasing demand that is preceived about 6 months down the road. That pick up in demand will stabilize oil and eventually drive it higher. These institutions buy it now while the prices are low and all of the retail investors are scared to touch it. For when it is obvious that the economy is recovering, the great discounted prices will already be gone. Thus the retail investor is always late to the ball game.
On Jan 06 04:59 PM xom-only wrote:
> way too soon to go long oil unless you are betting on a war disruption.
> this recent runup started with the isreal hamas agreement not being
> resigned, when the intrusion is dated the price of oil and oil stocks
> will drop back to december lows. my opine
Don't get me wrong, I'm buying stocks here too (in the form of ETFs..all cash, no leverage) but also bought up oil in the 40's through its tracking stock (USO) as I prepare for the coming economic recovery and higher prices to come.
That's also why guys like Jim Rogers have oil as one of their top picks to buy in 2009. It's got the best fundamental "bet" of most financial assets out there right now.
On Jan 06 01:49 PM zeronimo wrote:
> of course Oil will head higher because it is cheap right now and
> people are buying on the news about conflicts between Israel and
> Hamas (or the Middle East in general).
>
> but also expect that people will take their profits as soon the rally
> goes down. so i don't see the gas will go higher long term soon.
> it will go up short-term and i still expect the worst of it.
>
> oil price will be a lagging indicator for the bullish market. what
> i mean is the market will go up first before the oil will clearly
> be bullish long-term again.
Thanks for the article. Your scenario is very plausible. An economic recovery is coming IMO this year, maybe sooner than most expect. Oil, gold, and stocks will transition to bull markets. It won't happen in a straight line but the stage is being set for higher prices.
On Jan 06 11:06 PM jepittman wrote:
> Sean,
>
> Thanks for the article. Your scenario is very plausible. An economic
> recovery is coming IMO this year, maybe sooner than most expect.
> Oil, gold, and stocks will transition to bull markets. It won't happen
> in a straight line but the stage is being set for higher prices.
On Jan 07 08:19 AM Billgls wrote:
> Because the Futures Speculators with their greed will drive it higher
> for their benefit only.
Thank you guys for reading my posts and commenting.
On Jan 07 08:28 AM scfranklin94 wrote:
> I think this run up may push it to $60, but it will fall back into
> the mid-40s when production figures for OPEC come in and everyone
> sees that Iran isn't cutting back.
U.S. Refiners were in excess of 340 in 1981.....Today, less then 150.
5 major Oil Companies own 80% of the remaining refineries!
5 Major Oil Companies created this scenario by "Strategy!"
(See: The Oil Industry, Gas Supply and Refinery Capacity: More Than Meets the Eye
An investigative report presented
by Senator Ron Wyden
June 14, 2001
wyden.senate.gov/issue... )
OIL SUPPLY ISN'T THE PROBLEM when it comes to the price of gasoline! Demand at the pump is!
Yes, In 2008 Fuel prices rose in conjunction with Oil prices, but the excuses from the Major Oil companies regarding "Gas" prices started back in 2000 - and they ranged from refinery fires, explosions, pipeline issues, hurricanes and "finally" the outrageous oil prices.
It's called "supply and demand!"
They created the choking point intentionally - This spring and summer will prove me right!
Regardless oil prices or oil supply - Major oil companies now know YOU will pay $5+ per gallon for gasoline. They simply create a "delivery" issue concerning "gasoline," and you will see those prices "SKYROCKET!"
Educate yourself, Public ignorance is what these Companies profit from - NOT THE PRICE OF OIL!
On Jan 06 12:24 PM Ron2008 wrote:
> Sean, what about the huge amount of inventory hanging over the market?
> 50 mil + floating in VLCC. Cushing is getting full. That plus weak
> demand for all of 09 will keep gasoline below 2.50.
Keep in mind that Senator Ron Wyden provided that report back in 2001, long before the oil "CRISIS" of 2008!
With President Bush(Owned Oil Co.and close friendship Saudi royal family), Condaleeza Rice(Chevron Director from 1991 until January 15, 2001) and Dick Cheney (Former CEO of Haliburton) - All having previous Oil industry ties, all having strong INTERNATIONAL ties - Do you think it's completely beyond the realm of possibility that they had strong motivation and ability to influence the activity in the "OIL" world - SPECIFICALLY the outrageously profitable price increases over the past 8 years?
WAKE UP!
Oil WILL GO BACK UP- eventually exceeding the past highs - But regardless, Gasoline will certainly go to new highs as soon as, and as often as they can get away with it!
On Jan 07 11:12 AM thinkink wrote:
> Uhhhh..... DUHhhh.......
>
> U.S. Refiners were in excess of 340 in 1981.....Today, less then
> 150.
> 5 major Oil Companies own 80% of the remaining refineries!
>
> 5 Major Oil Companies created this scenario by "Strategy!"
> (See: The Oil Industry, Gas Supply and Refinery Capacity: More Than
> Meets the Eye
> An investigative report presented
> by Senator Ron Wyden
> June 14, 2001
> wyden.senate.gov/issue... )
>
> OIL SUPPLY ISN'T THE PROBLEM when it comes to the price of gasoline!
> Demand at the pump is!
>
> Yes, In 2008 Fuel prices rose in conjunction with Oil prices, but
> the excuses from the Major Oil companies regarding "Gas" prices started
> back in 2000 - and they ranged from refinery fires, explosions, pipeline
> issues, hurricanes and "finally" the outrageous oil prices.
>
> It's called "supply and demand!"
>
> They created the choking point intentionally - This spring and summer
> will prove me right!
>
> Regardless oil prices or oil supply - Major oil companies now know
> YOU will pay $5+ per gallon for gasoline. They simply create a "delivery"
> issue concerning "gasoline," and you will see those prices "SKYROCKET!"
>
>
> Educate yourself, Public ignorance is what these Companies profit
> from - NOT THE PRICE OF OIL!
>
I was wondering if you had any idea about how the price of gasoline and diesel will be likely fluctuate in the future. I was thinking of buying a new diesel car, but one downside to the better mileage is that the fuel itself costs more. 20 years ago diesel was cheaper, but now for some reason it's more expensive. Theoretically it should be cheaper because it's cheaper to refine as it is a less refined product. I wonder if this trend will continue, or if the oil companies will be building more diesel refineries to compensate for this and eventually reduce the price compared to gasoline. Thanks.
On Jan 06 08:44 PM Sean Hyman wrote:
> By the way, in the last 7 days, guess what stocks went up the most?
> Transportation stocks. That's typical when the big institutional
> investors feel that an economic recovery is 6 months away...they
> buy up the transports and technology stocks. Well you buy transport
> stocks just ahead of an increasing demand that is preceived about
> 6 months down the road. That pick up in demand will stabilize oil
> and eventually drive it higher. These institutions buy it now while
> the prices are low and all of the retail investors are scared to
> touch it. For when it is obvious that the economy is recovering,
> the great discounted prices will already be gone. Thus the retail
> investor is always late to the ball game.
So the increasing demand upon a finite supply works in the favor of oil and thus eventually gas going back up.
On Jan 07 12:37 PM mbd1175 wrote:
> Sean,
> I was wondering if you had any idea about how the price of gasoline
> and diesel will be likely fluctuate in the future. I was thinking
> of buying a new diesel car, but one downside to the better mileage
> is that the fuel itself costs more. 20 years ago diesel was cheaper,
> but now for some reason it's more expensive. Theoretically it should
> be cheaper because it's cheaper to refine as it is a less refined
> product. I wonder if this trend will continue, or if the oil companies
> will be building more diesel refineries to compensate for this and
> eventually reduce the price compared to gasoline. Thanks.
On Jan 07 07:19 PM geolog wrote:
> Hello,
> I would like to inform you, that to significant increase of exploration
> success and company energy potential there is new technology for
> oil/gas detection.
> With new exploration technology (patented invention US 7,330,790)
> oil industry could make up to three times more oil and gas discoveries
> than when using conventional technology. And the fact that new technology
> won't need more investments is also very important. It can significantly
> increase company dividends.
> The technology is designed and successfully tested in the Barents
> and the Black Seas as well as in the Gulf of Mexico (see: binaryseismoem.weebly....).
>
On Jan 08 01:20 AM Kunst wrote:
> On the other hand, if the smart money is wrong and recovery is farther
> away, these could be nice short plays. Put options, anyone?
It's not that it has to go up tomorrow...but it does have to over time due to these things you and I are pointing out. Great thoughts!
On Jan 08 10:34 AM biggintx wrote:
> I have been around the oil induustry for 60 years. Oil will go up,
> $40-50 oil is not going to promote exploration or revocery from shale
> and sand. Drillers are already backing off. Oil men are slowly learning
> that puting their $$$ into future profits in oil is riisky at best.
> Why produce more oil so that the price can go down? It is a business.
On Jan 08 09:53 AM Sean Hyman wrote:
> Many are wrong over the short term. However, its the "smart" institutional
> money that tends to get it right over the long haul. They do it full
> time, have more data, resources, better systems and better contacts.
> This will always be an edge over the "average Joe" that does this
> in his spare time from his home PC after work.
But even pros don't get it right all the time...they're just usually the ones that make it the long haul while others blow up (but a few pros do that too, ha-haha!) Of course, the average age of your average hedge fund manager is wayyyyy too young in my opinion.
I think you better come up with a better arguement than Dec. oil prices are at $60.00, last summer Dec 2009 futures prices were trading at 140.00 did ya think they would be trading @ under 50 in the spot market today. I am guessing no. What oil will be trading at in Dec. is a very difficult task and the savy understand thatand just do not do the trade. Wait for the fat pitch rhen swing with all of your might.
The "smart" institutional money as opposed to the "dumb" institutional investor right because the average institutional investor has certainly done no better than the average Joe working part time in his basement. The problem is that most institutional investors think they are the smart money just like most average Joes think that they are not average at all most think they are above average.
The simple truth is that most so called smart money with a so called edge do not earn their fees over the long term and msot average Joes would be well advised to just follow simple rules like having proper diversification and dollar cost average their investments over time to make mkt volatility work for them.