A Crude Sign of the Times

The world has found the ceiling where demand destruction kicks into high gear.  It's when a barrel of oil reaches about $125 - $135.   

You can see the signs of demand destruction everywhere - in economic reports, quarterly conference calls, even from the oil shipping companies. There is now an abundance of oil supply, so much so that oil tankers are being docked because they have no place to deliver their cargo. 

From Bloomberg...

Supertanker owners are leaving more ships at anchor after rising fuel costs and the biggest weekly slump in hire rates for at least a decade made it less attractive to deliver cargoes.

The reason there's an overabundance of supply is because demand is falling rapidly.  Worldwide growth hit a wall in May because of high energy costs.  Almost every retailer and financial transaction company in the US noted it on their conference call this quarter.  Even General Motors (GM)  threw in the towel on its Hummer division in May.  The pain to own one is just too great.  The demand for Hummers is nil.  A helpful shopping comparison from Carmax.com indicates that you can now buy a Hummer H3 for less than a Honda (HMC) Civic. 

click to enlarge images

All this indicates that crude oil is not done going down.  The top is in and it will be a while before oil revisits the mid $150s because the world stops spinning when it gets close to that price.

Comments

[investor88:]

Insightful analysis, I like the remark supported by chart about date of crude price with usd100 . Maybe it will be time to go long crude when usd100 is tested, but will put in stop loss say at usd96 in case usd100 is not low enough!?

2008 Aug 06 08:27 AM

[jjason:]

You forgot to add that EVEN SENATOR OBAMA mentioned "THE ENRON LOOPHOLE" recently.

Go to:

www.commerce.senate.go...

AND SEND MICHAEL GREENBERGER'S REPORT TO YOUR SENATORS AND CONGRESSMAN.

Also Go To:

www.stopoilspeculation.../

AND SIGN THE PETITION.

This author should have told you about these two sites. Tell your friends. You can thank me for the info when oil drops to $100.00... AND MAYBE OIL WILL GO ALL THE WAY DOWN TO $60.00 which is what I think it is worth.

2008 Aug 06 08:57 AM

[watching lines:]

Interesting comments. However, a look at most all of the commodity charts, like the one above, shows a bullish divergence in the MACD and RSI. While 100 may be a good test for a low, I don't see it in the near future chart-wise.

For an interesting intermediate-term look, overlay a SMI of 200 and 360. Watch for a break-out of the BB's, and a cross of the two SMI's gives a very clear picture.

2008 Aug 06 09:02 AM

[nakedjaybird:]

nakedjaybird
Aug 06 12:52 PM

T. Boone for President.

Even tho he's half right by wanting to replace NG electrical power generation with WIND POWER and half wrong by wanting to burn NG in vehicles instead of biofuels, he understands the real problems; the real causes; and addresses the real actions that change the causes of the problems.

His head is where the sun shines and wind blows, as contrasted to ALL THE LEADERSHIP IN WASHINGTON.

2008 Aug 06 01:03 PM

[Jimbo:]

Countra has been drinking fermented Koolaid again.

2008 Aug 06 01:34 PM

[TAMR666:]

T BOONE IS RIGHT AS IS JIMBO

2008 Aug 06 06:01 PM

[jjason:]

I don't make investments based on charts. Charts do not tell me if the company is earning a decent ROI and pays a dividend.

For example, I like ACAS because ACAS has very good fundamentals and pays me a 12% yield.

Also, I do not speculate in anything... remember the dot-com bubble??? And the Real Estate bubble???

I expect that by July of 2009, you will be saying " gosh, I wish I had seen the oil bubble coming".

Long ACAS. No investments in oil related stocks.

2008 Aug 10 06:42 AM