The oil price has been soaring, along with other commodities. Many feel that oil is already so high, it’s unlikely to rise much further. Our technical analysis, however, indicates otherwise.

As you can see on Chart 1, the oil price is now near its all time highs. Most impressive, the leading (medium-term) indicator is rising from a low area and it has room to rise further before it’s too high (see Chart 1B). This tells us oil is headed higher in the weeks and probably months ahead.

How high could oil go? Sustained record highs above $55 would not be unreasonable. And if oil rises to the top of its trading channel like it did in 2000, the oil price could get to as high as $70-$75. Again, this would not be unreasonable, especially if the leading (long-term) indicator stays bullish (see Chart 1C).

What could drive the oil price up to those levels? China’s growth alone and ongoing world demand could certainly do it. Let’s take China as an example.

Note how closely Chinese oil imports move with the oil price (see Chart 2). It’s amazing, but considering China has accounted for one-third of the increase in global demand over the past three years, it’s not surprising. Plus, China will depend on oil for over half of its energy needs in just five years.

So if this UBS forecast for Chinese oil imports stays on track, it strongly suggests the oil price could reach $70 within two years and, interestingly, this coincides with our own analysis. Needless to say, that would be inflationary.

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Mary Anne & Pamela Aden are the highly respected analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts and recommendations on gold, gold shares and the other major markets. For more information, go to www.adenforecast.com

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