Oil Price: $100 Before $150 - But $200 Before $50

Includes: OIL, USO
by: Cam Hui, CFA

Emerging market slowdown is commodity bearish
Some commodity prices are starting to show the strain and may be starting an intermediate term correction. Demand destruction is already being seen in oil and petroleum products.

Be prepared for volatility
Is it all over for the commodity bulls? I was asked that question recently and my answer was “expect $100 oil before $150 oil, but expect oil to hit $200 before $50.”

We remain in a hard asset cycle and the long-term fundamentals for commodity remain intact. However, investors need to be prepared for commodity corrections, which can be nasty and violent. The chart below shows the price action of the Continuous Commodity Index, which the old equal weighted CRB index before CRB went to a liquidity weighting. The index has moved up tremendously in the last few years and the bull trend can still remain intact should we see a 20% correction.