We Should All Get Used to Higher Oil Prices

Crude oil futures recently surged to above $68 a barrel on news of political tensions in the Middle East. Iran, which is considered a rogue nation by the Bush administration, has been in the news of late for holding 15 U.K. navy personnel after a ship was seized in a contested waterway between Iran and Iraq. There were also unsupported reports that Iran fired a missile at a U.S. ship in the Persian Gulf. In addition, The United Nations Security Council has sanctioned Iran for continuing its nuclear enrichment research. The tensions are easing, as the British hostages returned home this morning.

 The May light crude futures contract on the New York Mercantile Exchange jumped to a contract high of $68.09 on March 27, 2007 after trading below $60 on March 20, 2007. But prices have since traded down to the $64 level on hopes of a settlement.

 The short-term trend is positive, as the May contract broke higher on a bullish “V” formation on the chart. The near-term technical picture is moderately bullish.

 Rising Relative Strength accompanied the breakout on the chart. Now with the May contract holding above the 20-day and 50-day moving averages of $62.26 and $61.06, respectively, we may still see an upcoming move towards $70 and the previous 52-week high at $81.13.

 Oil at higher levels — especially over $70 — will impact the economy and spending. The days of lower oil prices are probably a thing of the past, so you might as well get used to it. And with the summer holiday driving season fast approaching, we could soon see more pressure on oil and gasoline supplies.

 High oil prices will continue to hamper those industries that use oil heavily. 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 available for spending, and this eventually filters into lower consumer spending and ultimately could impact the economy.