High Oil Prices Not Just Bad for Drivers

Driving is quickly becoming a luxury and not a necessity, as the average price of gasoline in the U.S. is at $3.33 per gallon as of April 8, up $0.53 per gallon compared to the same time in 2007. If you live in California, you are paying a whopping $3.68 per gallon, according to data from the Energy Information Administration.

It is becoming clearer that the high cost burden of filling up your gas tank will take away disposable income for other spending, as you only have so much money to spend. The end result of high oil prices will be a drag on consumer spending and this will impact the U.S. economy.

In addition, the impact on airlines has been significant, including the recent bankruptcy of ATA Airlines, which filed for Chapter 11 on April 2. Prior to this, Aloha Airlines filed for bankruptcy.

The problem also is the dependence on foreign oil, namely from the Organization of Petroleum Exporting Countries (OPEC), which has refused to increase production in light of the rising oil prices. The speculation is that OPEC wants to keep oil prices in the $85.00 to $100.00 a barrel range. Of course, oil has been much higher, with the May oil futures on the New York Mercantile Exchange trading at about $108.00 a barrel.

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The near-term technical picture for the May sweet crude is bullish as of April 8, but the Relative Strength is somewhat neutral, so we could see some stalling on the chart. The May oil is also overbought, so we could see some near-term selling pressure. Watch for selling pressure, as oil approaches the four-week high of $110.35. Failure to break higher could subsequently see the May contract fall back towards support at the 20-day moving average at $105.35.

We expect oil to remain above $100.00. The bottom line is that it remains expensive and this will impact the economy.