Okay, I'm going to talk my book for a few paragraphs. The story this morning is that US consumers have stopped driving and gasoline sales have declined. When people stop driving, they also stop spending money on vacations, restaurants and discretionary spending in general. The economy, which is 70% consumer driven, cannot sustain high priced oil and the cracks are appearing.
The next part of the narrative will be the obvious recession that we have entered this quarter. The move in oil has not been exactly parabolic, but the oil contract is well above it 200-day moving average and, on a technical basis, is overbought.
Sure, demand in China and other growing economies will continue to increase, but the acceleration will most assuredly drop. Also, China currently subsidizes the cost per gallon of gas to less than $3 per gallon which may end very soon.
I've mentioned DUG before and will mention it again. Can oil get to $150 per barrel? Perhaps, but the technicals and fundamentals point to $120 before $150.
Shorting oil is also a play on a stronger dollar, and with the dollar making new monthly low against the Euro, again the contrarian play is go short oil in anticipation of the stronger dollar.
Note that I'm not one of those nutjobs that thinks the run up in oil is "all due to speculators." Demand driven prices have brought oil up to $130 per barrel, but the demand projections have not fully factored in a prolonged recession in the US which would certainly affect developing econonmies as well.
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