Another prediction of declining oil prices — finally coming true?
Larry Kudlow on Jnue 29 of this year, predicting a fall in oil prices when they were at or near their peak for 2006:
Recently I interviewed four oil-tanker executives who control a combined 85 percent of the oil coming into the United States. They confirmed market rumors that the amount of oil being stored on large carriers on the high seas is abnormally high. One of the CEOs even predicted the possibility of $40 to $50 oil in the next 6 to 12 months. In another interview, Chevron CEO David O’Reilly suggested that gasoline and energy demands have flattened in the U.S., and may be showing signs of decline.
Prince Turki can threaten $200 oil all he wants, but we may instead be looking at a downward correction that will have oil prices dropping more than anyone imagines possible. Supplies are at their highest levels in eight years, while demand appears to be falling, or at least leveling off.
UPDATE
From Reuters today:
Oil prices have fallen as much as $16 from their peaks, their steepest reversal in 16 years, in a correction that traders say may be harder to shake off than past setbacks over the market’s four-year rally….some say this setback may prove more lasting.
“Even though we’ve retraced certain percentages similar to this, it definitely seems that the market is different now,” says New York-based ABN AMRO broker John Brady. “Other times I saw (the corrections) leading to great buy opportunities, but I don’t necessarily think that this time.”
Technical analysts who study past price action for future direction, say the drop through the 200-day moving average last week and this week’s fall below a three-year trend line — intact since mid-2003 — both send worrying signals. They say that the global environment is different than two or three years ago, when central banks were aiding liquidity with low interest rates and investors were seeking alternatives to sluggish equity and fixed-income markets.
Tighter conditions from Japan to the United States may now limit the kind of investor influx that helped oil get back on track in each of the market’s past corrections, while economic growth appears to be slowing, not accelerating. Lastly the market has been in a contango structure for nearly two years, forcing the growing number of passive long-only investors to pay up each time they roll their positions forward — a potential deterrent for investing more.
There are tipping points in bubbles, political or economic, where, what seemed inevitable only a moment ago, suddenly seems absurd. This may or may not be one of them. But neither $200 oil nor Iran and Islamofascism dominating the globe are carved in stone. Not a bad thing to remember — but certainly no excuse for inaction.