Slippery slope

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Crude Oil Prices Can’t Keep Up This Run

Crude has traded in a tight range between $80 and $110 since hitting a record of about $145 in 2008, then crashing to the low $30s after the recession gutted demand.

Lately, however, there has been some upward momentum in oil prices, and some are worried that we could be in store for multiyear highs in crude oil prices if it keeps up. After all, gasoline has crested the $5 mark in California again.

But don’t expect this to last. Crude oil has been rangebound for a while, and it’s difficult to imagine a scenario that pushes it significantly higher … beyond a terrorist attack on a refinery or a meltdown in the Middle East, of course.

As the economics blog Sober Look points out, gasoline stocks remain amply supplied — especially considering recent history.

The same is true for crude oil broadly. A glut of crude oil from the American Midwest has weighed on futures, and oversupply will hold back prices. And while OPEC did raise its 2013 forecast for crude demand, supplies remain almost 10% above year-ago levels, and the growth prediction is for a mere 0.9% this year. Hardly enough to roil global commodity markets.

Furthermore, there is a natural relationship between pricing and demand — where high prices limit consumption and spur alternative energy use. With natural gas abundant and cheap thanks to fracking, there are plenty of options beyond crude when it comes to energy production.

In short, don’t panic over high oil prices just yet. Big oil stocks like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and BP (NYSE:BP) have all lagged the market lately, and service stocks like National-Oilwell Varco (NYSE:NOV) and Baker Hughes (NYSE:BHI) haven’t done so well, either.

Beyond the dividend, there might not be a lot of short-term attractiveness in these plays.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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