Oil Price Forecast

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Weekend: Memorial Day Sparks Buying Opportunity
By Keith Kohl | Saturday, May 29th, 2010
Energy and Capital's Weekend Edition
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Although rules are made to be broken, there's one that I stick to at all costs...

I never drive on Memorial Day.

This self-imposed rule is the result of one fateful Memorial Day, many years ago. I experienced a traffic jam so mind-numbingly frustrating that I swore off driving on that day forever.

For on that day, a small, 30-mile strip of highway turned into a nightmare. What should have taken me twenty-five minutes to drive ended up being a six hour event.

If you happen to have travel plans over the next two days, I wish you the best of luck.

But no matter how stressful it is to think of driving on Memorial Day, I look forward to this weekend each year.

The fact is that Memorial Day marks the beginning of the summer driving season. As you may know, the summer driving season typically begins Memorial Day weekend and finishes on Labor Day weekend.

My only advice this summer: Enjoy the cheap gas while it lasts.

Even though average gasoline prices across the U.S. fell to $2.74 per gallon this past week, we know that Memorial Day is a turning point for oil demand.

As of last week, U.S. oil consumption has increased 1.13 million barrels per day compared to a year ago.

Meanwhile, oil prices rebounded from near 52-week lows of $66.11 per barrel to over $75 per barrel on Friday.

If nothing else, it's time for the bulls to take charge. Demand is rising. Global oil production remains stagnant.

By next week, I fully expect oil prices to gain momentum and start its journey back to $85 per barrel.

And then we have other factors that could lead to another price spike:

BP's "Top Kill" operation appears to have successfully plugged the leaking Macondo well. According to USGS officials, the leak was flowing between 12,000-19,000 barrels per day into the Gulf of Mexico — nearly 4 times more than BP previously announced.

To date, BP has spent $930 million in its cleanup efforts. Unfortunately, the damage has been done. The BP offshore spill has already surpassed the Exxon Valdez accident, and the anti-offshore drilling sentiment couldn't have come at a worse time. The BP spill will undoubtedly affect future offshore drilling activity over the next several years — time that we don't have.

On Friday, the NOAA's Climate Prediction reported that the 2010 Atlantic hurricane season, which officially starts on June 1, is expected to be active to extremely active. The NOAA is predicting a 70% chance for 14 to 23 named storms will develop this season.

Enjoy your Memorial Day weekend,



Keith Kohl

Editor, Energy and Capital