Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

The Big Problem for Energy Investors

Commodities / Crude Oil Jul 16, 2012 - 03:57 AM GMT

By: DailyWealth

Commodities

Best Financial Markets Analysis ArticleMatt Badiali writes: Oil prices are going to fall lower than you can imagine.

They've already dropped from nearly $110 a barrel in February to under $80 late last month. They've since staged a recovery to the $85 area. But the drop is not over. In fact, I think there could be more than 50% downside from these levels.



Here's why...

In 2011, the U.S. consumed 22% of the global oil supply. So what goes on in the U.S. oil market will have a profound effect around the world. And as DailyWealth readers know, what's going on is an incredible boom in oil production.

Oil production is up 34% from its low in 2005. And it could more than triple over the next 10 years.

If the U.S. continues to produce more and more oil (which it will), we'll buy less oil from other regions, like Africa and the Middle East. This will pull down the global price of oil.

Also, realize that the U.S. economy, while not in a recession, is still sluggish. This "near recession" condition is showing up in muted demand for oil-derived fuels. Fuel production (diesel, gasoline, and jet fuel) consumes 79% of the oil we use in the U.S. Today, global fuel demand is down 13% from its peak in 2007. Demand for gasoline and jet fuel peaked in April 2007.

The chart below shows both trends, beginning back in 1995. The data clearly show demand is down and production is rising.



This is a recipe for a collapse in the price of any commodity... Oil is no exception.

Just how low it falls depends on several impossible-to-predict situations around the world. Europe, for example, is the world's second-largest oil consumer. Its sovereign debt crisis could push the region from recession into depression, driving down oil demand and prices.

Or take China... The Chinese economy is slowing down. Since China is the world's workshop (and a major supplier of gold to Europe), any slowdown there would depress commodity prices.

And then there's Iran. For now, the country's "saber rattling" is supporting oil prices. (You can read more about why here.) But if this "conflict" gets resolved peacefully, it will take even more air out of the oil price.

I believe whatever happens, oil still is facing a drop to $60. And given the global situation, oil could easily sink to $50 per barrel... or even $40 a barrel. I don't expect a drop of that magnitude, but it's possible.

So you need to be on-guard for a giant fall in oil prices. That means steering clear of oil investments right now. There's simply too much risk in holding them... and not enough upside. That's the short-term outlook.

And longer term?

Remember... commodities are cyclical. They go through big booms and busts. And should an oil bust arrive, it will create a lot of opportunities to buy cheap, distressed assets.

The world has a knack for avoiding "Armageddon," so a long-term investor should look at an oil crash as a great opportunity. Should one arrive, I'll be the first to alert you.

Good investing,

Matt

Editor's note: S&A Resource Report editor Matt Badiali scours the resource markets to find unique opportunities you won't hear about in the news. These opportunities have helped his readers make an absolute killing... landing four triple-digit winners in just over a year. Learn more about the S&A Resource Report here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2011 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules