Crude oil futures shot up on Wednesday after some negative numbers in the most recent Energy Department report on gasoline inventories. The weekly data showed a decline in domestic inventories of gasoline by 4.4 million barrels and a decline in the supply of distillate (includes diesel and heating oil) by 2.6 million barrels.
The May light crude futures contract on the New York Mercantile Exchange jumped to an intraday high of $67.69 a barrel in Wednesday trading. Prices are about 20% higher on a year-over- year basis.
The short-term trend is positive as the May contract broke away from a rectangle channel with resistance at $65. Rising Relative Strength accompanied the breakout on the chart. Now, with the May contract breaking above its 20-day and 50-day moving averages of $64.80 and $64.58, respectively, we could see an upcoming move towards $70 and the contract high of $70.10 reached on February 1. The near-term technical picture is bullish but given the buying, the May crude is technically overbought so we could see some near-term selling before trending higher.
Based on Point and Figure analysis, light crude has broken higher after an ascending triple top breakout on March 28. The price target is $76.
Whatever the case, $70 oil will impact the economy and spending. The days of low oil prices are probably a thing of the past so you might as well get use to it. And with the summer driving season in a few months time, we could see more pressure on oil and gasoline supplies.
High oil prices will continue to hamper those industries that use oil as a major cost. These include the airlines, which are already trying to pare costs in a very competitive pricing climate. Transportation and heavy industrial companies will also feel the wrath of higher oil prices.
On the consumer side, high oil prices cut into the amount of disposable income that is available and this eventually filters into lower consumer spending and could impact the economy.
The trend for oil is up and you better get use to it.