Energy prices are here, there and everywhere. Oil was trading at around 55, then went to 59, USD, March 07 futures are trading at 61 USD, and May 07 Futures are trading at 69 USD. Between now and May oil would have to increase 25%, which is a hefty premium.
A reader of my previous energy update said what I was thinking:
Doesn’t it seem strange that futures prices are higher than current prices? What products sell this way? Think about it, if you were going to buy something, like a computer or a TV, would you be willing to pay MORE for delivery in six months than to take delivery today? Of course not. You would just by the TV or computer today and be able to enjoy it today while saving money.
Doug’s thinking is interesting and worth the read. I agree with him that some big players (hedge funds, etc) are being squeezed and oil could become very volatile. Part of the reason why there is a glut of oil is because non-OPEC members are filling in the slack that OPEC is cutting.
With gasoline going up in price, and heating oil going up, from its low points refineries are making more money. This makes me think about looking at refinery stocks.
Let’s look at the price of oil. Doug is saying that oil prices are headed down. I don’t disagree and as I have been saying in the past the trading range should be 55 to 65. I did say in the past that oil would drop to 45, but stepped away from that. I would love to say, “yes oil will drop to 45”, but I don’t think it will happen.
Here are the things I am thinking about:
- Iran happens to be a big oil exporter, but gasoline importer. With oil going down, and gasoline going up they are not going to be happy campers.
- Iran and Iraq are social messes and the fallout if an “explosion” happens could be immense.
- People are idiots! (http://www.charlottesvillenewsplex.tv/news/headlines/4691426.html, http://www.post-gazette.com/pg/06325/739944-185.stm, http://www.chicagotribune.com/business/chi-0611140235nov14,0,3731833.story?coll=chi-business-hed) SUV sales are going back up again! I personally feel like “bitch-slapping” any person who today buys a gas guzzling SUV without a valid economic reason.
- Chavez needs the money as his back is against the wall (http://www.iht.com/articles/2006/11/08/business/citgo.php, http://www.latinbusinesschronicle.com/app/article.aspx?id=542).
- Nigeria is a problem http://allafrica.com/stories/200611130552.html, http://www.iht.com/articles/ap/2006/11/20/africa/AF_GEN_Nigeria_Oil_Unrest.php.
Using technical analysis oil is going down. Technical analysis is effective when there are no sudden events. And a sudden event, more specifically a nagging feeling about Iran bothers me. I am not demonizing Iran, what I am saying is that Iran has some serious internal issues. Add on the complication of Iran being part of the equation in Iraq, and I am getting butterflies in my stomach. If we were to put the squeeze on Iran then Iran would unite and put the squeeze on us.