H/t to C.Prez
Dr. Joe Duarte explores the “oil top” and wonders: Is this the big one?
After a 16% decline in the price of crude oil and a 14% decline in overall commodity prices, as measured by the CRB Index, questions are rising about the status of the secular bull market in commodities.
The fact is that although no one wants to say it, it is possible that we may have seen a long-term top in the price of crude oil. The problem with making any such claims, is that it’s nearly impossible to make such assessments without having at last several weeks, and sometimes months worth of evidence.
The top of the dot.com bubble took months to become clearly evident, although the losses were already significant by the time the trend was already established.
The technical evidence at the current time in the oil markets, though, suggests that something is ongoing, as the 200 day moving average, the line that divides long term up trends and down trends is being tested on key major commodity stock indexes, as well as futures contracts.
For example, stocks like Halliburton and Schlumberger (see our Market Moves section below) have been in major and very aggressive down trends for some time.
Both are key components of the Philadelphia Oil Service Index (OSX, see chart below in our oil and energy section), which has collapsed over the last few days.
Gold prices have also taken a hit recently, with the $600 area now being tested, and breached on 9-11, although prices rose back above the key benchmark overnight.
There are many reasons for a significant pull back in commodities.
First, oil prices have been on the rise since the 9/11 attack in 2001, with nearly a non-stop bull run during the period.
Second, the Federal Reserve has raised interest rates four fold over the last several years after taking the Fed Funds to 1% after the 9/11 attacks.
And third, there are now clear signs that the U.S. economy is starting to slow down, as housing prices fall, and thus the borrowing power of home equity is starting to fade.
He goes on to explain that ” the decline in oil, and thus commodity prices, at this point, is more due to a fall in demand, than to an oversupply.”
Another potential problem, obstacle is that ” investment in alternative energy remains significantly below what it should be.”
Just about every person in the West, be it either in the US or in Europe, seems to agree that more should be invested in (finding and developing) alternative energy, yet… just about every single country fails to do what’s necessary to develop / produce them on a significant scale.
If Western countries want to become less dependent on other, non-Western countries, alternative energy is one of the major keys of accomplishing it.
Lastly, he emphasises that successful attacks, carried out by Al Qaida, against oil installations in the Gulf, will also greatly influence the prices:
[D]espite calls for a complete collapse in oil prices, if Al Qaeda has one success, even if it is relatively minor, against an oil installation, the oil market’s conclusion that there is little threat to prices from terrorism will have to be re-evaluated. Most likely, from a price standpoint, the re-evaluation will be most unpleasant, for consumers, oil companies, and short sellers.
PAST CONTRIBUTOR.