Energy: Will Crude Rocket To $145 A Barrel?
It’s beginning to feel a lot like 2008 again…
As you may remember, West Texas Intermediate (WTI) crude went on a moonshot in 2008, rising to $145 a barrel. An exceptionally tight global market had many analysts fearing the price of oil would never come back down. Of course, the commodity came crashing back to earth once the US financial crisis took hold later that year.
Now fast-forward to 2013. WTI is currently galloping over $106 a barrel and looks poised to challenge the $110 high set in early 2012.
Take a look…
As you can see, oil is breaking to 2013 highs. If crude surpasses the $110 mark (blue line), it will only have to deal with one more technical resistance level at $114 before having a clear shot at $145 (red line).
Is a repeat of 2008 likely?
To answer that question, let’s take a step back…
First of all, why is oil jumping higher in the first place?
A resurgence of Middle East uncertainty sent supply fear shocks running through the crude market in late June and early July. As of today, a substantial premium of around $5-$10 a barrel has been built into the price of oil due to political unrest in Syria and Egypt.
And that’s not all. The arrival of the US summer driving season is playing a big role in crude’s rise as well. In fact, huge EIA crude inventory drawdowns over the past few weeks have helped keep crude investors on the bullish side of the market.
But here’s the deal folks…
To say that oil deserves to be priced at $108 a barrel because of the two factors above is pure nonsense. Some of the major financial media outlets are purporting the recent Egyptian uprising could spread into a major oil producing country like Saudi Arabia.
Friends, there’s ZERO chance of that happening…
I don’t have the time to go into all the details here, but the idea that Egypt’s uprising will spread into Saudi Arabia is laughable.
And what about those big EIA crude inventory drawdowns over the past three weeks?
This is simply due to US refineries getting ready for the US driving season. What’s more important is the fact those drawdowns came when total US petroleum inventories were at all-time highs.
As a matter of fact, in early June, US petroleum inventories were at 397 million barrels. That’s the highest level since the EIA began tracking the weekly data decades ago.
Of course, the reason US inventories are so abundant is because US oil production is at a 23½ year high. That’s right, the US is currently producing as much oil as it did in 1990- 7.49 million barrels a day.
All this information points to why the current rally in crude is unsustainable.
In fact, once Middle East fears simmer down and the summer driving season starts winding down, I wouldn’t be surprised to see crude prices quickly drop below $90 a barrel. In other words, be prepared for the lightning quick plunge of $18 a barrel or more in coming months.
And listen to this…
The CEO of Gulf Oil, Joe Petrowski, went on CNBC a few days ago to say crude will drop to $50 a barrel by the end of the year! His reasoning for lower prices is the same as mine-with US production booming there’s plenty of supply here in the US.
Folks, WTI is blatantly overpriced right now. There’s no way this market will achieve the $145 high set in 2008.
Stay tuned to Commodity Trading Research for analysis and insight on the hard asset markets.
Until Next Time,
Justin Bennett
