Wednesday, February 23, 2011

crude oil

Things have been pretty quiet on newspaper front pages and on magazine covers over the past few months. But this morning the New York Times headline concerned the oil market (image at top of this post).

The headline itself is emotionally very restrained. However, I do think that the two year rally from the December 2008 low at $35 has built up a substantial bullish investment crowd in the oil market. People keep telling me that oil can only go up from here because of inflation, and improving world economy, etc.

But oil is a commodity like other commodities, and it has a substitute for many bulk uses - natural gas. Natural gas prices are near historically low levels and I think this is not only going to keep a lid on oil prices but will also soon be exerting substantial downward pressure on the crude market.

Political uncertainties may well drive crude a little higher, say into the 100-105 range. But once the psychological $100 barrier is breached I think sellers will come out in droves. Within a couple of years crude oil should be selling below $50.