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How High and What Affect

March 7, 2011 – 6:03 pm

Retail Sales for February will be released this Friday and there are hints that it may well be strong. Of course oil prices, thus gasoline prices are high and that is part of the retail sales report. However, removing energy from the report will be the focus of most money managers as they look for signs of strength or weakness in the fundamental economy.

As oil prices rise because of the Middle East issue it acts as a tax on everyone in the U.S. That tax can be absorbed as long as it is not too high. That ‘too high’ number is unknown. I would suggest that at $120 per barrel there will be little affect on our economy. If it goes to $140 we are looking at a much more dire consequence.

I think we are approaching the top in oil. It could reach the $120 level but for that to happen more than just the country of Libya has to fall apart. How much fear is built in to the price of oil at $104, the price it is this morning? At what price will the fear peak? Once it has peaked and begins to ease, the stock market will continue its march
upward.

There is no way to know where oil prices are going but we know that China and India are trying to slow their growth. We also now that the world has plenty of supply at the moment. At the same time the U.S. economy is gaining strength. These events and the political uncertainty in the Middle East play tug of war on oil prices.
Long term oil is going higher. Short term expect a peak with a subsequent retracement. It’s the ‘where’ that is unpredictable.

Good Trading
Steve Peasley

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