On the web since 1997
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On the web since 1997 |
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Support for OilLuke Hodgens / Powerhouse Profits -- Winter demand on home heating oil has finally begun to thin out. With warmer temperatures on the way, heating oil traders are slowly, but surely, beginning to close positions and abandon the seasonal commodity…and crude prices are following suit. We’ve seen a strong down trend in crude prices in the past two weeks as oil has fallen from near $50 to its current $45 and change--a drop of about 9%. Of course we aren’t seeing these prices translated at the pump yet, but nevertheless, it is good to see prices fall.It’s kind of funny how the news media covers the oil market. You’ll hardly ever see reporters interviewing average Joe at the pump when prices are declining; after all, good news is bad news for TV. Who wants to see that? You’ll only see coverage when OPEC makes a production cut or an Iraqi installation is sabotaged. We’re told why prices rise, but rarely are we told why they fall. That’s my job. The 9% fall over the past few weeks can be attributed to three events, two of which are obvious. First, as discussed earlier, the weather is getting warmer. Demand for heating oil is dropping pulling crude along for the ride. Second, Saudi Arabia promised to continue pumping oil at current levels, easing concern of an OPEC supply cut at their next meeting in March. But what is a bit more clandestine, and actually much better news for consumers, is the fact that Indonesia may opt out of the OPEC cartel. Indonesia joined the cartel back in 1962 and has been experiencing strong production declines over the past decade. In fact, the OPEC nation is pumping well below quota for years. Since Indonesia cannot keep up with OPEC’s production quotas and are now a net importer of oil, the nation may face expulsion. But rather than face the embarrassment of being kicked out of OPEC, Indonesia may instead decide to resign from the club. This is great news for us. Should Indonesia leave the cartel, the nation would be open to competitive bidding for its crude. OPEC has known of this situation for some time, but the news is fresh to us. This undoubtedly helped crude prices fall over the past two weeks. How low will it go? With the winter heating oil season ending, crude could fall much lower. Support for oil prices is now near $44 per barrel in the very short term. Mid term support sits near $41. While it is quite possible for oil to break through support and head for $41, its unlikely $41 will be broken. Remember, even though winter demand is on the way out of style, summer driving demand is the new fad. Look for oil to be trading between $40 and $45 through the springtime. Gasoline prices should fall within a month or so. Hang tight fellow drivers. Luke Hodgens is the editor of |
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