High Oil Prices Causing Pressure
The climate is currently ideal for higher oil prices. Last week, we had the testing of long-range missiles by North Korea, which caused concern in Asia as well as the United States. Add to the existing situation in Iran regarding its nuclear development program and you have added risk.
Now in the Middle East, there appears to be an escalation of the conflict with Israel launching military attacks against its neighbor, Lebanon.
The impact on crude has been swift with the basis August light sweet crude on the NYMEX surging to over $75 a barrel to $75.89 in early Thursday morning trading.
After a double bottom at $69 in May and June, oil prices have regained their bull legs as the risk premium is threatening to drive the August oil to a new contract high at over $77.08 a barrel.
As I have said in past commentaries, the outlook for oil continues to be bullish and I believe prices will remain high given all of the uncertainties out there.
The current short-term and near-term trend is bullish. The Relative Strength is relatively strong as the August oil has taken out the 20- day and 50-day moving average at $72.34.
Should the conflict in the Middle East continue and intensify, there is a good chance that August oil will break to a new contract high in the next several weeks.
Energy stocks will continue to reap the benefits of high oil prices. And, with the busy summer driving season in full gear, I expect the price of gasoline to remain high. The impact of this will take a chunk out of the disposal income consumers have for other expenditures.
As we have seen, retailers could feel the pinch from rising gasoline prices as consumers reduce trips to the malls and for shopping excursions. Bellwether stock Wal-Mart Stores, Inc. (NYSE/WMT) has already blamed weaker sales on higher gasoline prices.
The high oil prices will also cause concern among investors, especially with the second quarter earnings season set to intensify.