Oil’s Far From Done with Us

Market risk is rising not only due to credit and economic concerns, but also because the trend for oil and gasoline continues to move higher. The price of the light, sweet crude for May surged above $118.00 a barrel in electronic trading on the New York Mercantile Exchange on supply concerns. With this, the average price of a gallon of gasoline is now about $3.50 a gallon in the United States, while jumping to $3.84 a gallon in California, where you may soon see $4.00 a gallon this summer. Gasoline prices are high, but compared to Europe and even Canada, they are relatively low.

Again, for the consumer and those who rely on their vehicles as their only mode of transportation, the recent surge in oil and gasoline will translate into less money available for other spending. The fear is that this would 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 that the real impact has been fully disclosed. The near-term technical picture for the June sweet crude remains bullish as of April 22, with rising Relative Strength. Yet given the surge, the June oil is extremely overbought, so we could see some near-term selling pressure. Watch for selling pressure, as oil approaches resistance at $119.00 and overbought resistance at $124.67. As we move forward, we expect oil to remain high at above $100.00. The higher energy costs come at a bad time for consumers and the already fragile economy that may face more shocks.