Jack Yetiv

A Case for Retreating From Oil Investments

I have been bullish on oil and gas for more than a year (beginning well before oil crossed $100) and I remain so. Although I have been bullish, I was not calling for oil to hit $150 this year, or, perish the thought, $200.

In an article I published here in early 2008, I said I expected oil to cross $100, cross $110 and test $120, but then spend most of this year between $100 and $120. That remains my prediction. In my predictions, I did miss the irrational rise to almost $150, and perhaps I will be wrong again and oil will go below $100 and stay there for a while.

But I doubt it.

As the author has correctly stated, all the bearish factors he has discussed could have been perceived 45 days ago. Indeed, they could have been perceived 145 days ago. So that is not the reason for the author's change of heart. Instead, his change of heart is due to "listening to the market."

But, AT MOST, the market is telling us that oil was overpriced at $147. It is not telling us that oil is overpriced at $115. Yes, I know that some of the technicians in the crowd believe that oil's recent swoon indicates it's going to $60. But those technicians didn't tell us it was going to go to $147 less than two months ago, so we can all admit that technical analysis of where oil is going to be next week or next month is next to useless.

What I think ALL of us can agree on is that markets OVERSHOOT, both to the upside and to the downside, so market movements don't help me much.

What DOES help is a supply-demand analysis, which the author has done, but I think he has missed some very key factors, which I will discuss in the next post.