Red-Hot Resources

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Friday, January 05, 2007

Crude Oil and the Slip 'n' Slide of Doom

There was a rumor yesterday that a major player in the oil market got caught in a long-crude-oil futures, short-the-airlines trade. He had to liquidate positions, and this, they say, is part of what keeps pushing down oil prices, which are treading below $55 per barrel as I write this.

I don't know about you, but I think the real thing weighing on it is the weather. I just got off the phone with a trader in New York. It's so warm, he didn't even bother wearing a coat to work. In January! In the Big Apple!

Demand for heating oil is plunging. In the short-term, unless this changes, we should see lower prices. Of course, lower prices boosts consumer demand. All those people who bought the giant SUVs the car makers are practically giving away are going to look like geniuses. People who buy more fuel efficient vehicles (me!) will rue the day.

Well, that's not true. I love my Honda. I wouldn't trade it for the most pimped-out Hummer H2 in the world.

Longer-term, I still think there's a supply squeeze coming right at us. Look at this chart of Venezuelan crude oil production...

You'll see the same picture in Kuwait, Saudi Arabia, Mexico -- you name it. Maybe non-OPEC production will rise enough to make up for these declines ... but I'm more comfortable betting on a long-term supply decline, long-term price-rise.

In the short-term, though, the easiest path for oil prices seems down.


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