Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Wednesday, February 27, 2008

Is Oil on the Way to $112?

The US Department of Energy Petroleum Report shows a build in crude inventories of 3.23 million barrels. Analysts were expecting a build of 2.58 million barrels. It's the 7th week in a row that we've seen a build in inventories.

Despite all that, oil prices are only down around 31 cents a barrel and are still over $100 per barrel at this writing. If the market doesn't sell off on bearish news, that's actually pretty bullish.

Now, for something more interesting. What if crude closes the week at these levels? Here's a chart grab I made earlier this morning, when oil was a bit higher ...

A weekly chart of oil shows crude in the process of making a breakout, and it could be big. If oil completes the breakout by closing above $100 on Friday, a technical forecast puts the next price target at $112.

Some of the forces driving oil higher …

The US dollar is tanking. The greenback sank to a record low against the euro after Tuesday’s release of three U.S. economic reports – wholesale inflation, consumer confidence, and falling US home prices -- that show that the economy is slowing as prices for consumer goods rise. Since oil is priced in dollars, as the dollar slides, oil generally climbs.

In 2008, the world will hit an important milestone -- using oil at a rate of more than 1,000 barrels PER SECOND! According to the International Energy Agency, global oil demand will average 87.8 million barrels per day (bpd) in 2008, up from 85.7 million bpd in 2007. At 87.8 million bpd, we'll use 1,016 barrels per second — a sonic boom of energy use.

America is the world's largest consumer of oil, guzzling more than 7.5 billion barrels per year. We import more than half the oil we use, and that amount is rising, despite the build in inventories.

The world consumes an astonishing 173 billion barrels of oil every 2.4 years. At the same time, we find enough new oil to supply just 3% of that. So, just to keep prices stable over the next decade, we're going to have to find a couple more fields the size of Ghawar — the biggest oil field in Saudi Arabia ... and the world.

Labels: ,

Check out my new gold and energy blog at