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More Oil Price Hikes Could Be on the Way

George T. Leong
 


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Get ready to pay even more at the pumps. With the price of the May sweet crude on the NYMEX jumping over $114.00 a barrel in trading, the price of gasoline in the United States is now running at a nationwide average of $3.38 per gallon, up $0.51 per gallon compared to the same time in 2007. In California, you are paying a whopping $3.77 per gallon, according to data from the Energy Information Administration.

The latest surge in oil appears to be relentless and could foreshadow further increases down the road given the positive trend in oil.

For the consumer, the higher price of gasoline means that less money is available for other spending and this could translate into pressure on consumer spending, which accounts for about two-thirds of Gross Domestic Product growth in the United States. The retail sector is already on shaky ground, so the increase in fueling costs cannot help.

In addition, the higher energy costs will also put a drain on businesses, especially those in the transportation sector. High oil prices could also put a damper on car sales and this would translate in to pressure on auto-parts makers and so on. There is a domino effect and it may not be pretty.

The near-term technical picture for the May sweet crude remains extremely bullish as of April 16 and the Relative Strength has strengthened from the previous week. Yet, given the surge, the May oil is overbought, so we could see some near-term selling pressure. Watch for selling pressure, as oil approaches resistance at $115.18 and overbought resistance at $116.72.

As we move forward, we expect oil to remain high at above $100.00. Some pundits have come out and said that the price of gasoline could rise another 25% this year. If this plays out, it would be disastrous for consumers and the already fragile economy.

George T. Leong, B. Comm
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