Could a short term top in oil turn into a major top? When even long time oil bears start saying that $100 a barrel is inevitable, then it’s probably time to start evaluating the down side.
I remember the day not too many years ago when being bullish on oil was a lonely occupation. For years I made the case that the rally in oil was not a negative for the economy but a story of worldwide economic growth. It was a story of commodities being undervalued for decades finally getting revalued. Rising oil was a sign that worldwide economies were improving. That oil going higher was not a bad thing because it reflected the improvement of the standards of livings of people all over the globe. I was early on the China story and how it would feed into the next big commodity boom. I was criticized by many and many thought that the belief that China and its economy could feed a boom was naïve. They said that oil, if it went above $30 or $40, would throw the world into recession. Yet now the same guys who criticized me for making these observations are now touting them as their own thoughts. It’s funny how things change when your right the market.
Year after year in the early years of the bull run on oil I was one of the most bullish analysts out there constantly predicting highest or second highest price in the year outlook surveys and being right almost every time. As the years have gone by more bulls have been converted almost to the point of getting radically bullish. In fact the same people that use to debate me and say how bearish oil was and how high prices would sink the economy are now suddenly so bullish that it is almost ridiculous.
Over the years I challenged the false notion held by many in the financial establishment that really did not understand or appreciate the dynamics of what was happening in oil.
Many were locked into a false notion that high oil prices were the cause of economic grief. But in many cases that was a misdiagnosis of what happened in the 1970’s oil embargo and had no relevance to what was happening then or now.
The critics had a false idea of what oil should worth not fully appreciating that oil means to the economy. Oil had gone through a bearish cycle and was poised to make a move to new highs on a long term cycle basis. Students of oil should know that oil has a history of boom and bust. And more often than not a boom in price coincided with a boom in economic growth. The 1970’s were an exception but far from being the rule.
In the nineties when everyone was seduced by the “New Economy” oil and commodities were shunned. Many in the financial establishment thought they had only a secondary role in the world economy. Of course that kind of thinking made many miss one of the greatest moves that this new millennium has seen. And now that everyone is oil and commodity crazy it’s probably time to lay it on the line. Oil could be close to a major top.
Calling a top in a market is a dangerous occupation with oil when a geo-political event or a weather event could easily drive us higher the bigger macro picture on oil suggests that it could be time. That’s not to say that we couldn’t move higher on an event and that we couldn’t resume the upward trend later but the fundamentals on oil are turning in what may mean that oil could have one of the most significant corrections in recent years. In fact it is even possible that in 2008 oil prices may not surpass the highs that we make this year. Just when the oil bears have embraced the long side one of the longest term bulls on oil out there (that would be me) is getting ready to abandon them.
The main reason I'm thinking that oil could fall in 2008 is that for the first time in years new oil production percentages will be highest when compared to expected world oil demand growth. Yes, currently world wide inventories are tight and if we get a cold winter oil could still rise but the facts are that the chances for subdued worldwide growth is greater than anytime since the attacks of September 11, 2001.
This is the best chance that the price of oil is at a top that we've seen in years. Yes we will see some rallies but 2008 will not be straight up and could be a year of sideways congestion. You can be in on it when you open your account with me by calling Phil Flynn at 800-935-6487.
Sell January crude at 9890 - stop 10010.
We're long January heating oil from apprx 25985 - stop 26800!!
Stopped on long January RBOB from apprx 23200 at apprx 24500. Sell January RBOB at 24400 - stop 24600.
We're long January natural gas from apprx 779 - stop to 785.
Have a GREAT day!
