The price of oil is usually measured on a per-barrel basis. The price also can be quoted as the spot price, which is the price of buying a barrel at the current moment, or as the futures price, which is the cost of buying a barrel of oil in future months. Two main contracts traded are West Texas Intermediate (WTI) and Brent Crude. WTI oil is light sweet oil and very well suited for gasoline. Brent Crude is a blend of oil from the North Sea. Futures prices are quoted in increments of 1,000 barrels of oil for every one contract.
The oil sheiks at the Organization of the Petroleum Exporting Countries (OPEC) must be at their wits’ ends these days, with oil prices showing some downward pressure.
While the West Texas Intermediate (WTI) spot is in the mid-$90.00 range, there’s a sense we could see a downward move in oil prices, including gasoline prices at the pumps, on the horizon.
Over the past decades, OPEC’s decisions were largely influential in determining the direction of world oil prices. This was done by regulating the production of oil out of the Middle East.
The sad reality is OPEC has held the United States and other industrialized countries hostage simply by controlling the flow of oil and oil prices.
Texas oil baron T. Boone Pickens has long been a champion for domestically produced oil and for lessening the import of oil from OPEC, which he blames for keeping oil prices high.
The truth is that Pickens is correct.
Think about what happened in October 1973, when an oil crisis surfaced that saw some members of the Organization of Arab Petroleum Exporting Countries (the predecessor to OPEC) announce an oil embargo while also attacking Israel in the Yom Kippur War.
So here we are some 40 years later, and OPEC continues to dictate the global oil prices to a major degree, but the positive side is that it doesn’t have to be that way and it will likely change.
The fact is that the United States is producing more oil domestically than any other time in its history, and this includes the high potential flow of oil from the Canadian tar sands via the … Read More
Oil drives the world.
But the problem now is that the industry is building up an excess inventory in available oil while global demand is dwindling, as the global economy continues to struggle with the aftermath of the Great Recession in 2008. The result: lower oil prices.
Some argue oil prices will easily rally back, but I’m not convinced, based on both the fundamental and technical pictures.
On the chart, the near-term technical outlook for oil prices is bearish. Spot oil prices are below $90.00 a barrel for West Texas Intermediate (WTI) oil, and they’re edging lower to the mid-$80.00 range.
Spot oil prices have recorded 10 new lows and five new highs over the past three months, according to data from Barchart.com. Over the past year, spot oil made 21 new lows to go along with only eight new highs. It’s clear that the market bias is negative on oil prices.
Based on the spot high of $106.16, reached on May 1, 2012, the spot WTI oil price is down 18.3% as of Thursday, which is nearing the official definition of a bear market.
The chart of the WTI spot oil price below shows some indecision, according to my technical analysis.
Chart courtesy of www.StockCharts.com
The fundamental side is also helping to confirm a potential downward pressure on oil prices.
We all know that oil is one of the most volatile of the commodities, fluctuating with the prospects of the global economy and, of course, the happenings in the Middle East.
On the supply side, there is some calm in the Middle East, but the tensions in North Korea … Read More
Oil is one of the most volatile of the commodities and fluctuates with the prospects of the global economy and of course the happenings in the Middle East.
Yet, if you really look forward, how can you not like oil given the growth in China and, more importantly, the emerging growth in India?
In June 2012, when oil prices fell below $80.00 and some were saying to sell, I was positive, as the chart suggested support would surface and the weakness was not a trend.
The U.S. Energy Department increased its projections for crude oil prices for this year, citing that global oil consumption would rise to a record in 2013. (Source: Shenk, M., “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg News January 8, 2013.)
Take a look at the price chart for the spot West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, oil prices slid despite multiple attempts at rallying back to the $100.00 level. The spot WTI is again back below its 50-day moving average (MA), but I expect there will be decent support at the lower trendline and the 200-day MA.
The chart is displaying what is looking like a bullish flag formation setting up, which means higher oil prices could be coming to back over $100.00 in the best-case scenario based on my technical analysis. You need to also be watchful of the $80.00 support level, which was breached on several occasions; but in each case, a rally followed.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will … Read More
The death of Venezuelan leader Hugo Chavez is a significant event for millions of people around the world, including Americans.
The most obvious reason is oil, more specifically oil prices. With Venezuela being one of the top-five suppliers to America, any disruptions in supply will have a certain impact on oil prices.
Currently, Venezuela produces approximately 2.5 million barrels of oil per day (bopd), with one million barrels going to the U.S. His death could have a dramatic impact on oil prices, as well as long-term investing possibilities. (Source: Johnson, K., “After Chavez, a Question of His Country’s Oil,” Wall Street Journal, March 5, 2013.)
To begin with, Venezuela has one of the largest reserves of oil of any nation. Prior to Chavez becoming leader, Venezuela was producing approximately 3.5 million bopd. Under his mismanagement and social policies, this has dropped to 2.5 million bopd. Many analysts believed a decade ago that Venezuela should be producing over six million bopd, which would have provided long-term investing opportunities for international firms and kept a lid on oil prices.
However, the nationalization of many international companies meant that Venezuela has lacked in the development of new technologies and is deficient in skilled workers. America, in contrast, has become one of the largest oil and natural gas producers in the world, with significantly lower domestic natural gas and oil prices, providing a boon to those firms involved in long-term investing that have developed technologies to extract these commodities.
This leaves two big questions: where will oil prices go and are there any long-term investing opportunities?
Over the short term, Vice President Nicolas Maduro … Read More
One of the most difficult aspects of investing is adjusting one’s economic forecast to the dynamic and ever-changing global economic environment. An investor cannot be so dogmatic that they are unable to shift their economic forecast as new data come out.
For much of the second half of last year, there were many fears that China was going to encounter a significant slowdown, and many analysts had been lowering their economic forecast for that nation. Recent data, however, show that perhaps the Chinese economy might be able to rebound, at least in the short term.
China recently reported that exports grew a better-than-expected 25.0% and imports rose a substantial 28.8% from the year-ago period in January. This was in addition to much higher credit issuance, and an inflation rate that was quite subdued at only two percent. (Source: “China trade tops forecasts in holiday distorted month,” Bloomberg BusinessWeek, February 8, 2013.)
There are some issues with the data: the 2012 Chinese New Year began on January 23 and, in 2013, the Chinese New Year began on February 10; this shift in holidays, which result in business closures, needs to be taken into account when making year-over-year comparisons. However, analysts calculating their economic forecast did take this into consideration, predicting exports of 17.5% and imports of 23.5%, according to the median estimates taken by Bloomberg News. (Source: Ibid.)
If the Chinese economy continues to outperform, not only will analysts increase their economic forecast for the remainder of the year, but certain sectors will also benefit, including oil prices.
International oil prices are set based on Brent crude, as opposed to American-produced … Read More