Higher Oil Prices Not Going Away

As was widely expected, members of the 13-nation Organization of Petroleum Exporting Countries (OPEC) appear to be leaning against any production increases to help alleviate the high record oil prices at above $100.00 a barrel. At this Wednesday’s meeting, OPEC will likely rule against any production adjustment, as it said that it believes an economic slowdown in the United States and globally would dampen demand. The oil cartel currently meets about 40% of the world demand for oil.

The continued belief among pundits is that OPEC wants to keep oil prices between the $90.00 and $100.00 a barrel range. For consumers and businesses, the climate of high oil prices will continue to pressure spending and expenses.

As I have been saying for a while, oil prices remaining high remains a real threat. High oil impacts transportation companies that have oil as a major part of their expenses. For the economy, the high oil prices translate into higher corporate costs and could impact earnings. For the consumer, high oil prices translate into high gasoline prices. People will tend to drive less and make fewer trips shopping, which in turn will impact retail sales and the economy.

The near-term technical picture for the April light sweet crude is bullish as of March 4, as oil has broken above and out of its previous trading channel of between $85.00 and $100.00. The move came after a bullish minor double bottom on the chart. But watch for selling pressure, as oil is technically overbought in the near term. There is selling pressure at the recent 52-week high of $103.95. A strong and sustained break could see the April oil move up to over $110.00 a barrel.

The Relative Strength is rising and is moderately strong, but it needs to rise further to support the higher prices. The April oil is trading above its 20-day and 50-day moving averages of $96.60 and $91.38, respectively, as well as the 200-day moving average at $81.97. These are downside technical support levels.

The bottom line is that oil is expensive at the current record level, but also if it breaks back to its previous channel at above $90.00. OPEC wants to make money and wants it now. At the end of the day, industrial countries will need to get used to higher oil prices.