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Crude crash

Tue, Sep 16 2008, 15:01 GMT
by Phil Flynn

Alaron

Crude oil continues to crash as the economic world around it goes through historic turmoil. Can the Fed save the day?

Lehman is gone and can Merrill Lynch continue to be bullish on America if they no longer exist? Even as Rome is burning, oil bulls are still living in a world of denial as some refuse to come to grips with what is happening around them. All day yesterday I got calls and emails from oil bulls that tried to convince me that what was happening in the market was not justified by the fundamentals. I heard that all oil and gas production is shut down or that refineries are under water and that world demand for oil is still strong. All I can say is that it is this same type of denial that brought Lehman down. It looked like Ike did more damage to demand than to supply and the surrounding economic fire storm will accelerate the demand drop. And please don't try to tell me that demand from the rest of the world will support oil. It will not. Demand is - I repeat - slowing in the rest of the globe so please come to grips with that fact. The world’s economies have not decoupled from the US economy and the fallout from the crisis will be felt around the globe. Yes, we are seeing demand from China falter. Just ask the Japanese refineries that are cutting back on production due to lack of demand. Ask Jean Claude Trichet who until recently said that the biggest threat to his economy was inflation and not that pesky little crisis in the US. That, he said, was the US problem and his economy was just fine! Well eat those words Jean Claude because it appears that your economy and oil demand is slowing as well.

That is not to say oil cannot rebound but those that tried to tell you that high oil prices had no consequence on the world economy, even with the US slowing, are being proven wrong. I said oil was going back to double digits and here we are. Now we will continue to sell rallies as our near term target is $85 a barrel and longer term to $67. Yes we are oversold so if the Fed cuts rates we could rebound but oil will have to face a softening world economy.

Sell November crude at 10000 - stop 10200.

Sell October heating oil at 29900 - stop 30300.

Sell October RBOB at 28500 - stop 30300.

Buy October natural gas at 680 - stop 670.

Have a GREAT day!

Published on  Tue, Sep 16 2008, 15:04 GMT