Just imagine if oil dipped briefly to $70.
Imagine one last opportunity to load up on $70 futures -- or maybe $80 or $90 futures -- and lock in that price for say... the next 5 years.
If everyone knows prices are going back up in the longer term.... very unlikely it'll drop in the first place.
My analogy is like this:
Imagine you live in a tiny village on an island that cuts down one big tree every year for fuel. The trees take 100 years to grow. There are 10 trees left on the island. So some villagers will argue we don't need to conserve -- there ARE plenty of trees to keep life the way it is. No need to buckle down, reduce one's quality of life. Supply for the foreseeable future is plentiful.
And the truth is, life would continue on just as before until the eleventh year, when the quality of life would plummet dramatically and get worse forevermore.
The 'bubble' theorists refuse to look too far into the future otherwise they'd see what the market sees. Oil is plentiful right now - that's true. But when the tides turn -- there'll be no escape.
We should be thankful for oil prices. Until only recently Americans were buying 10 miles to the gallon Hummers -- for what purpose? Instead of conserving we were actually wasting the stuff because it felt good. Governments and Corporations like GM are terrible at managing long term strategies -- like pension plans, social security, medicare. People like Al Gore who talk about this stuff are labeled nutcases by half the country. It's a very hard sell. So spinning stories about oil dropping back to $70 probably appeal to many who just want things to be the same and can't imagine changes are permanent.
I suppose oil to $70 could happen but it wouldn't last long. The demand destruction created this year would hardly last -- the RVs would come right back out of the garages. Americans would not conserve and solar/wind would be put on hold, plus some deepwater drilling that costs over $80/barrel or more would be shelved as well.
Right now my charts say we're about a buck or two from the bottom of last week's record price drop. Otherwise, maybe it drops to $120 tops. Then buyers should return.
Right now I'm seeing more bounce for the markets although it all depends on how much more juice the financials can squeeze. My 'general time horizon' for trading is about 3 days now. After that, stocks seem to turn 180 and down it goes.
AI
