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March 28, 2007

Oil Is Gold Again

Late last year and early this year we saw oil prices drop from nearly $80 per barrel to just under $50 per barrel at its lowest point. This happened due to a number of different factors. One of those was over speculation. Funds of all types had been putting piles of money into crude oil driving prices skyward. As these companies started pulling their money out, crude prices rapidly deflated. On top of this pull out, the US experienced an unusually warm winter during the end of 2006 and into the very early part of 2007. This drove down demand for related commodities like heating fuel, which cause crude inventories to rise.

Since then, the winter in the US took a good turn for the Oil industry and a near month long cold snap increased demand greatly. This cause Oil futures to begin their recovery. Increased instability in Venezuela, a major supplier of Oil to the US, also contributed to the gains that Oil prices have had. Most recently, and perhaps most importantly, the situation in Iran is headed downhill. Talks have broken down, and the UN security council has passed sanctions to hurt Iran economically. In addition, Iran took British soldiers captive which increased the instability of the situation. Oil prices have rallied to nearly $65 per barrel, $15 higher than its lowest point. Part of that gain happened today after a report came out that an Iranian missile nearly struck a US vessel. This claim was denied by the US military, but the markets don't seem to care.

My forecast: $73 per barrel oil by June. Increase your gasoline inventories now, because prices are going higher.

Posted by jkill at March 28, 2007 12:18 PM


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