Surging oil and gasoline prices continue to be a major risk factor going forward. The price of the July light sweet crude on the New York Mercantile Exchange was at a record high of $139.12 a barrel on June 6, while gasoline prices just surpassed an average of $4.00 a gallon in the U.S. and over CDN$5.00 a gallon in Canada, based on the U.S. gallon at 3.78 liters.
Oil failed to break $140.00, and has since traded lower to the current $133.00 a barrel. However, the trend is bullish and we could see more upside moves unless demand declines in response to the higher prices. The Goldman Sachs Group, Inc. (NYSE/GS) predicts that oil will reach $150.00 a barrel this summer, driven by tight supply despite lessening demand. Goldman feels that oil can eventually spike to $200.00 a barrel within two years, based on what they call a “super spike.”
The impact on consumers and businesses is obvious. Consumers are already feeling the pinch and are driving less for shopping trips and spending less due to less disposable income. The fear is that this could drive down consumer spending, which accounts for about two-thirds of Gross Domestic Product growth in the United States.
Also watch for the impact of higher energy costs on businesses. In addition, there will also be an impact on non-profit organizations and this means the need to raise more funds. The reality is that the impact of these high oil prices will be dramatic, and I do not feel the real impact has been fully disclosed.
The near-term technical picture for the July sweet crude remains bullish as of June 11, but the Relative Strength is neutral, so there may be some range trading in the near term. Watch for selling pressure, as oil approaches resistance at $140.00 and overbought resistance at $147.00. As we move forward, we expect oil to remain high at well above $100.00. The higher energy costs come at a bad time for consumers and the already fragile economy that may face more shocks.