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Friday, February 24, 2012

how high crude oil prices week feb 27 - march 2 2012

how high crude oil prices week feb 27 - march 2 2012 ; crude oil prices rose this week, supported by concerns that heightened tensions between the West and Iran may get out of hand, although profit taking ahead of the weekend weighed on gold. On Friday, Iran’s United Nations’ ambassador said Iran wants to talk further with the International Atomic Energy Agency, although a Western counterpart called negotiations this week regarding the country’s nuclear activities, “very long and fruitless,” according to Reuters.

Crude Oil extended gains a seventh day and keeping at a nine-month high on ongoing worries over Iran and supply disruptions. Prices hit $113.93 a barrel on April 29, a 52-week high, as concerns about geopolitical tensions in the Middle East had also taken the stage. Crude is currently trading at 109.22. Crude-oil futures gained 1.5% in the previous session. An official at the International Monetary Fund said Thursday that a halt of Iran’s oil exports to the Organization for Economic Cooperation and Development countries could trigger a 20% to 30% jump in prices.

Last week, the focal point in the political debate turned to the sharp increase in gasoline prices over the past few weeks. The Democrats are justifiably concerned that higher gas prices will reverse the improvement that President Obama has seen in the polls.

The Republicans have found a new reason to attack, but those who really understand the markets know that some things are difficult, if not impossible, to control. Even if driving was outlawed in India and China, it is hard to imagine that gas would get back to $2 per gallon.

Technically, crude oil completed a double-bottom formation in October which at the time projected a move to $105.33 per barrel. That target was easily exceeded this week, and the chart shows that we have surged above the $104 level (line a) and closed well above $109 per barrel.

One of my favorite technical tools, the on-balance volume, did a good job of identifying this low and is still pointing higher. The next resistance is in the $110-$112 area with the May 2011 high at $115.27.

The long-term seasonal patterns in crude indicate that it typically bottoms in February. In 2011, the April high in crude oil prices correlated nicely with the high in the small-cap Russell 2000.

Of course, the concern is that if crude reaches $115, gas prices will be well above the 2008 record price of $4.12 per gallon. It is likely to take a steadily improving economy to offset the impact of higher gas prices on the consumer. Last Friday, the Reuters-University of Michigan consumer sentiment showed a nice increase to 77.4, which was the highest reading since early 2008.

So far, the higher crude oil prices have not dampened the enthusiasm for stocks, as the markets continued to move higher again last week. The correction camp, which I have been a member of since early February, is getting more and more crowded. In the stocks section, you will see some charts that suggest we could have already seen the correction.

The ongoing saga in the Eurozone was ignored for the most part this past week. There was plenty of troubling news, as three large Eurozone banks, including France’s Credit Agricole SA, the UK’s Royal Bank of Scotland Group PLC, and Franco-Belgian lender Dexia SA disclosed huge losses, in part due to the declining value of their Greek debt holdings.

The European Union also downgraded its outlook for the region’s economies and now projects a 0.3% loss compared to an early forecast of +0.9%. Let’s hope that is far off the mark, as many economists were last fall.

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