As you know, oil prices have plunged since June. Many so-called experts such as T. Boone Pickens are predicting prices will, indeed, go back to $100 a barrel. Below I give you three reasons why oil prices will NOT trade above $77 in the next year -- and possibly longer.
- The US dollar has officially broken out to the upside on the charts, which will keep oil prices in check for a very long time. That's because oil around the world is traded in U.S. dollars, also known as the world's reserve currency. So if you live in Japan and want to buy a barrel of oil you need to convert your yen into U.S. dollars before you can buy that barrel of crude. Traders should note that as long as the U.S.D. remains strong, crude prices will remain weak. Just look at the chart below and you'll see an inverse relationship between the price of crude and the rise in the U.S. dollar.
- Other central banks will continue to devalue their currencies for the next couple of years. This stimulus act by central banks around the world such as the Europe's ECB and Japan's BOJ will help strengthen the U.S dollar for years to come. Basically, the U.S.D. is strengthening due to the massive money printing the central banks. Once again, a strong U.S. dollar means a weaker price in crude.
- Many countries -- including China and the United States -- have vowed to promote solar and other alternative energy sources. It's easy to see how many people are now driving hybrid and electric cars. Solar and alternative energy technology continues to improve for commercial and residential use, which should cause the use of fossil fuels to decline. Many countries such as the United States and Canada have unlimited supplies of natural gas, which could also put pressure on oil prices for years to come.
