With the current price roughly 25% of its high, it is time to put oil back on the radar screen.
Watch what Boone Pickens has to say.
I sold my USO position in May for $106.85, a 140% gain in 16 months (purchased for $44 in Jan. 2007). It now sots at $89, 16% below the sale price.
Buy now? No.
The global economy by almost every measure is slowing. Will it be a “global recession”? No. The pace of expansion will just slow. That will relieve some demand stress on the whole equation. The US economy, the main consumer of oil looks as though it will muddle through 2009.
With that being said, the supply / demand equation for oil, tilted to the demand side for the last year, ought to begin to stabilize. As it does, interest in the commodity will wane as easy profits will diminish. As it does, the price of oil (barring any significant geopolitical event) will slide with it.
How far? Under $100 or another 7% to 10% lower. Long term, the demand for oil will rise, significantly. Any temporary demand reduction from China or India is just that, temporary. The US will wake from its current snooze and demand at home will grow along with it.
What could offset this? A cellulose ethanol breakthrough that could quadruple US ethanol production almost overnight and displace 900 million barrel of oil demand for gasoline. That essentially equates to 90 days of oil imports becoming unnecessary.
Natural gas. Should actually go it it (it is right off our coasts) we could use it to power vehicles. It would be cheaper than oil, reduce exports and be cleaner.
Here is the thing. either of those two events are at least a year off in the case of ethanol and probably almost a decade for natural gas. That means China, India and a resurgent US demand rule the equation until then. That means higher prices..
It may take a while and you may have to weather a hurricane or two that will pump a temporary rise in prices but I think if you are patient, you will be able to pickup the USO and the price equivalent of crude under $100.
Disclosure (“none” means no position):None
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