The shift in oil prices
is a common topic on the top of many people’s minds. Oil prices have a
large effect on the U.S. economy through both consumers and
corporations. Oil prices could hurt the pocketbook of the consumer,
while also increasing costs for producers.
One
of the enduring situations has been the spread in oil prices between
U.S. West Texas Intermediate (WTI) crude and Brent oil, which is the
international market. We have consistently seen this difference average
approximately $20.00 per barrel, as much of America’s crude is
landlocked and unable to be transported to refineries (no new capacity
has been built in decades) that can convert the product to gasoline.
With
the introduction of shale technology, there is now becoming a real
possibility that a glut of oil will flood the market, driving WTI oil
prices down. The net result is that gasoline prices will still remain
high, as there are limits to transportation and refining capabilities in
America.
Another situation is the
recent meeting of the Organization of the Petroleum Exporting Countries
(OPEC), at which there has been a disagreement between Saudi Arabia, the
largest producer of oil, and Iraq, which is now the second-largest
producer.
Because of the weak global
economy, many are expecting OPEC to reduce production. However, neither
Iraq nor Saudi Arabia is willing to reduce production if oversupply
becomes an issue. Combining stubborn resistance to reduce supplies by
OPEC members, with a massive increase in domestic production in America,
oil prices could continue to decline.
The
tone of the debate is best evidenced by recent comments from Iraq’s
OPEC governor, Falah Alamri, who said, “Iraq will never cut its
production. Some who increased their production in the last two years,
they should do so.” (Source: “OPEC Keeps Production Ceiling, Extends
Chief’s Term,” The Wall Street Journal, December 12, 2012.)
Chart courtesy of www.StockCharts.com
Clearly,
oil prices on a technical analysis basis look weak. With hostile
comments about refusing any reduction in supply, we should see a
continued drop in oil prices. Of course, this depends on geopolitical
risks in 2013 that hinge on Israel. While technical analysis currently
shows that oil prices are most likely headed below $80.00, an election
in Israel next year could change this outlook.
If
Israel attacks Iran, then the technical analysis picture would
certainly change. At that point, the downward sloping resistance levels
will most likely be broken, and oil prices will be sent higher. However,
without an outright attack, fundamental and technical analysis points
to lower oil prices in the future.
Article Source: Profitconfidential
Article Source: Profitconfidential