Crude Oil Prices — The High Stakes Game

Charles Payne
Yes, the world's economies are growing at breakneck speed, but are they growing enough to justify crude prices in the $60s, $70s, or even higher? But the hype that has driven oil prices in 2005, incredible economic growth in India and China, is a story that is already baked into oil prices. Let's not forget that oil broke out of its trading range not because of the hot economies of India and China, but because there had to be a terrorist premium, or insurance policy against a production-crippling attack in an OPEC nation. As the price of crude went beyond what could reasonably be considered insurance, the bulls in the oil patch began to toss out the notion that global growth happened overnight and justified even higher prices. Sure, there is a greater global demand, but that hasn't led to a decline in the supply of crude.

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Moreover, the reality is that the straw that stirs the oil patch is the United States. Having said that, the latest oil crisis will do what other oil crises have done before; make American consumers more efficient and willing to conserve. For now, however, it seems clear that a tough winter could see oil prices rallying once more. I'm not saying it is justified, but the writing on the wall makes it obvious. Key resistance points for crude include $60.00 a barrel and then $63.00 a barrel. The panic price points for crude and the most vital resistance point begins at $70.00 to $71.00 a barrel. I don't think crude will move to new highs, but there is a major chance that crude oil prices will dominate the financial headlines throughout the winter. The rise in crude would harm the stock market, although there have been as many instances where equities and crude have traded in tandem, making one forget about the adage that stocks must move in the opposite direction of crude oil.

Yet, there is no way the stock market could ignore the long-term impact of higher crude; crude over $60.00 a barrel for six months or longer would severely impact corporate earnings in 2006. It's not going to happen. For now, we view the shenanigans in the oil patch to be just that — high stakes games — played by the best poker players in the world. The resolve of oil prices has to be monitored and respected. However, in the end, equity and equity investors may be able to look at recent inventory trends (distillates from which home heating oil is derived have experienced inventory builds in four consecutive weeks) coupled with common sense, and not head for the hills when crude eventually spikes higher in the days or weeks ahead.

Petroleum Inventories 12.02.05 11.30.05 11.23.05 11.16.05 11.11.05
Crude 320.3 317.6 321.8 321.4 323.6
Motor Gas 202.6 199.9 200.4 200.2 201.1
Distillates 130.6 127.9 124.5 123.4 120.8

Tune in this weekend to our Business Block, Saturday beginning at 10am ET, for more with Charles Payne and the entire FNC business team.

Charles Payne is the founder and CEO of and appears regularly on FNC's Cost of Freedom Business Block.

Charles Payne is the host of Making Money with Charles Payne (weekdays 6-7 PM/ET).