Oil prices tapped the shoulder of $60 a barrel in trading this morning with front month contracts briefly hitting $60.08 before slipping back down.
The last time oil prices settled above $60 a barrel was on November 12.
Demand is starting to trickle back into commodities. The U.S. imported nearly 35 million barrels of oil more in March than it did in February. In fact, oil imports jumped to $11.98 billion in March, up from $10 billion in February. The average oil price climbed more than $2 a barrel, too, for the first time in eight months.
This forced the nominal U.S. trade deficit wider, and it now stands at $27.58 billion.
Crude prices had been rallying even though inventories were the highest in nearly 30 years.
“It has been a long time since any economic data signaled a near-term rise in petroleum demand, and there isn’t any now,” said James Williams, an economist at energy research firm WTRG Economics told MarketWatch.
Williams thinks these high oil prices are unsustainable.
Taipan Daily is your FREE resource for the hot global investment strategies available today... so you can beat Wall Street - and other investors - to the profits. Join us now, it's easy -- and free!!
Interestingly, prices for oil companies aren’t moving in tandem with the price of crude. Most companies have hedged themselves for much of 2009.
Bloomberg reports, “Producers that pre-sold their September 2009 output a year ago locked in a price of $106 a barrel, based on New York Mercantile Exchange futures. If that’s the last month for which they have hedges in place, the best they can hope to get for October production is $58 a barrel, or 45 percent less.”
And that means a lot of consolidation could happen in this industry in the fourth quarter of 2009 or the first quarter of 2010.
But the markets are betting on a recovery rather sooner than later, and some economic news has begun to improve. It’s a mixed bag, but with oil prices so low compared to this time last year, both economic angles could boost oil prices right now.
A bad economy could mean the Fed printing more money creating an inflationary situation, which would increase dollar-denominated oil prices. A good economy means the return of oil demand, which pulls down inventories and increases oil prices.
Justice Litle, editor of Taipan’s Safe Haven Investor, says, “In spite of popular fears, crude oil was never a serious contender for going to zero.”
There are a number of reasons why oil prices have been climbing, he notes. Everything from a weakening dollar to airline hedging is propping up crude prices. But demand is always a factor.
“The global economy is no more going to stop burning oil than humans are about to stop breathing air,” Justice says. And, he continues, “With the ‘green shoots’ drumbeat refusing to be denied, we are now seeing hesitant investors buy back into the market almost against their will (for fear of getting left behind).”
Other Articles Related To This Topic:
