I’m traveling (I’m in Colorado) and not watching a lot of news, but I thought I’d jot down some thoughts. Oil prices dropped below $120 per barrel yesterday as traders worried that high prices are affecting consumer spending, and the markets are probably waiting on the latest from the Energy Information Administration.
Since the markets are in a bearish mood, even news that would normally be seen as bullish will probably not push prices higher. Oil’s next support is around 116, and I’d expect that to be tested (perhaps this week).
So what kind of bullish news will traders ignore? Maybe the fact that rising oil prices haven’t hurt demand in China and India one bit. That, in fact, the EIA expects global oil demand to grow this year despite everything, even as supplies remain flat.
Or that car sales are soaring in China. In fact, GM sells twice as many Buicks in China as it does in the US — more than 330,000.
How about the fact that the bottom seems to be falling out of the ethanol market, with ethanol refineries closing their doors. While ethanol doesn’t replace a lot of gasoline in the US (ethanol provides less than 5% of our transportation fuel), remember that prices are made on the margins.
And then there are geopolitical forces the market is ignoring right now. On Monday, Iran announced that it has tested a new weapon capable of sinking ships nearly 200 miles away, and Tehran threatened (again!)that if it is attacked, it will close the Strait of Hormuz. Up to 40% of the world’s oil passes through that strait.
But in the short term, the price of oil will go down until it finds support. I think oil is oversold to the downside right now, but that doesn’t mean it can’t get more oversold. The more oversold it gets, the better the bargains will be for the snap-back surge to the upside.
Related Posts
- Friday Morning Thoughts (10/03/08)
- Yes, We Have No Ethanol (06/19/08)
- The Case for $50 Oil (11/10/08)
- Oil and Gold Charts and Monday News (10/19/08)
- Charts of S&P and Vix, and the Search for a M… (11/19/08)
{ 1 comment… read it below or add one }
Hi Sean, this is the first time for me on any blog, or RSS feed for that matter. I receive Money and the Markets and really enjoy your articles ( and adventures into the wild) I see that you are a native New Englander also, and I
have been to Mt. Washington many times uncluding the Cog RR that you worked on. I really enjoyed your article today on Solar. We have had three solar DHW panels providing all our hot water needs for a family of 6 since 1984. They paid for themselves in
three years ( 4 teenagers at that time? ). I also took part in a program with Mass Electric 8 years ago, and have 2 solar electric panels on my garage roof, they have provided 3980kwh of free power to date. These are generation 1 panels with inverters on
the panels. Have a safe trip, look forward to more investment info. Regards, Dick (Graywolf)