Oil prices have found some renewed buying in recent days as the light crude for January 2007 on the NYMEX broke back above $60 a barrel on November 27 and over $63 a barrel on December 1, 2006. Production cuts by the Organization of Petroleum Exporting Countries (OPEC) are helping to drive prices higher. The break above $60 is bullish if you are holding oil as it was a difficult technical resistance level. Watch the upcoming sessions to see if the $60 level holds.
The near-term outlook for oil is moderately bullish at this time. The chart of the basis January 2007 light crude shows an upward breakout from the previous base at $57.50-$63, but in order for us to get bullish, oil would need to break key resistance at around $65, last encountered in early October of 2006.
The January oil is back above its 20-day moving average at $60.82 as well as the 50-day moving average at $61.53. The Relative Strength Index (RSI) is improving and is above neutral. We need to see the RSI strengthen further in order to help confirm the rally.
If oil can break $65, we could see a move towards the 100-day and 200-day moving averages at $67.78 and $69.91, respectively. The impact could be negative on consumer spending and the economy, which is already facing some growth concerns.
With the higher oil prices, we could see some weakness in transportation stocks and airlines. For the stock market, retailers could be hurt since more disposable income is required for gasoline expenses. Big box retailers in suburbs such as Wal-Mart Stores Inc. (NYSE/WMT) could be hurt from higher gasoline prices as consumers park their cars and take shorter trips.
Stocks to look at include energy companies and many small-cap energy stocks that have been declining in line with the drop in oil prices. But be careful, as oil can easily fall back below $60 a barrel and settle back in a $55-$60 base trading zone.