Thursday July 03, 2008

Crude oil prices hit $144.32 record on NYMEX while stocks enter bear market

This article belongs to the NYMEX crude oil price records story arc.

guardian.co.uk :

Oil prices shot to a record high above $144 a barrel on Wednesday [2 Jul 2008] after a drop in US crude inventories stoked supply concerns. US crude oil hit a record $144.32 a barrel on NYMEX. Oil prices have jumped seven-fold since 2002 as demand from emerging economies like China and India stretch supply growth. Fears of an escalation in the showdown between over Iran's nuclear program have helped push oil prices to fresh records. The weak dollar also continued to support oil prices as investors have been using oil and other commodities as a hedge against the weaker dollar and inflation.

- This is turning out exactly as the early peakoilers had been predicting for years. At the same time that NYMEX crude oil is setting record oil prices, the Dow Jones is leading US stocks into a bear market, as reported on Yahoo : "The Dow became the second major US index to enter a bear market, crossing the critical threshold of a 20% decline from its peak, following the Nasdaq in February [2008]. The broader S&P 500 is a little more than half a percent from the same fate."

Besides talking about the date of global peak oil, the peakoiler community has also been actively discussing the possible repercussions. It isn't too hard if you think about it - cheap fossil fuels have been literally fueling the global economy, driving economic "growth" to fantastic levels such that people have turned complacent and started treating "growth" as a given. The peakoilers know better. No cheap energy equals no growth. No growth equals tumbling stock markets, since the entire capitalist system runs on the concept of growth. Even a slowdown in the rate of growth, and we're talking second-order here, might mean trouble for a stock, so it is patently obvious what a permanent removal of the cheap oil factor would mean for the global stock markets.

So this is what I did. I sold off my loser stocks just before the stock markets started to crumble big time which would have driven them deeper into the ground, took the proceeds and turned around and bought truckloads of barrels of crude oil, via HOU, the Horizons BetaPro Crude Oil Bull Plus ETF. This is a 2x leveraged crude oil ETF, which means that you get double the gains as crude oil goes up. Of course the converse is also true on the downside, so it is like the proverbial double-edged sword, to be used with great care. A safer bet would be to buy into USO, the United States Oil Fund ETF, which simply buys front-month NYMEX crude oil futures without any leverage - I've got some of that too.

As a peakoiler, I expect crude oil to continue to set new records in the months and years ahead. Subsequent resistance levels like $150, $180, $200, $300, $400 and beyond are numerical way-markers on the journey ahead, while short term corrections may and indeed have bounced off support levels of $140, $130 and $120 in $10 intervals. Oil is in a running bull market, and we are reaching for the stars.

See also :

1. NYMEX crude oil hits $143.67 record on Iran concerns
2. NYMEX crude oil hits $142.26 record, investors flee falling stock markets
3. Crude oil hits $140.39 record on NYMEX as Libya warns of output cut
4. Goldman Sachs : Demand, not speculators, behind crude oil price rise

(2008-07-03 09:18:28 SGT) [Energy] Permalink

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