Crude Oil at $122 Is Good News for Refiners

 |  Includes: HFC, SUN, VLO
by: J. Christoph Amberger

Oil prices fell below $122 a barrel “on expectations that the surge in energy prices is depressing U.S. gasoline demand”. What the oil bulls don’t tell you, of course, is that a bubble asset like oil is most popular when it goes up and produces risk-free gains. An asset that drops $30 in 2 weeks is not risk-free. Hence, it seems less attractive. Investors get cold feet. If they don’t bail… they may well stop putting more money at risk.

We had started to predict a drop in oil prices several weeks ago. In fact, the invitation to join our new premium service Hot Stock Confidential was based on the analysis of money flows, as hedgefunds and industry insiders began to divert large streams of cash into U.S. refinery stocks.

Accordingly, refiners Valero (NYSE:VLO) — up 3-plus %, Sunoco (NYSE:SUN) — up 7-plus %, Holly (HOC) — up 5-plus %, are all in the green.  If predictions of OPEC’s president come to pass, we could see oil back at $70.

Our own speculation on falling oil prices involves a U.S. refiner that not only has been artificially depressed by mishaps earlier this year… but has just added dramatically to its overall capacity.

Some analysts still predict that oil could trade at $175—or even $225—by December.  But insiders and hedge funds are betting serious money on falling prices.