Crude Oil Poised To Hit $100… New Reality?
I think it’s safe to say that the days of $30 – $50/barrel crude oil are long gone. With the continued industrialization of India and China and the ever expanding world population, the price of all commodities will have to have a much higher price floor. The question now becomes where is that floor for oil? If I were to take an educated guess I’d probably pinpoint the mid range of the 2008 peak and the 2008 bottom of around 150 to 40. With a difference of 110 and a mid range of 55, that gets us to around $95 for crude oil. I don’t think that average seems high at all considering the economy isn’t close to running on all cylinders and we’re already near that level. The only way I see the price of crude crashing again is if we get a big China bubble pop which certainly can’t be completely ruled out. Throwing outlier moves away, I really believe $80 – $100 crude is our new reality over the next several years and that price floor should continue to rise in the coming decades.
In the shorter term the price of crude oil did break out from a year long range above the 2010 high in recent weeks and does appear poised to take on that $100 level. It is considerably overbought according to the stochastics reading and may need to pull back a bit, but $100 looks achievable. I don’t see a move too much further beyond that level this year because I do believe the overall market will have a difficult time soon but we’ll see. On the support side, the $80 level is a key level beyond that because that’s where the 50 and 200 day moving averages converge.