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Stock Ideas Investors Daily Edge How Much Lower Can Crude Prices Go?
Stock Ideas Investors Daily Edge How Much Lower Can Crude Prices Go? 
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By Rick Pendergraft Dear Reader, Call me crazy, but I am starting to miss Alan Greenspan. For 19 years, Mr. Greenspan led the Federal Reserve through some of the most tumultuous times of the past 50 years. There was the 1987 crash, the Internet bubble, and of course the attacks of September 11. |
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| How Much Lower Can Crude Prices Go? |
| Tuesday, 19 August 2008 | ||||||||
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Already investors are talking about oil falling below $100 ... and perhaps below $90... OPEC (at least OPEC member Iran) is talking about reducing production... Even a war in Georgia that raged in an area where one million barrels a day of crude are being piped to the West couldn’t stop oil’s free fall. In about a month, sentiment went from extremely bullish to extremely bearish. Did the fundamentals of oil supply and demand change that fast? Yes they did. On the supply side, Saudi Arabia produced 145,000 more barrels in July than the month before and OPEC produced a million barrels more than it did in April. On the demand side, the U.S. is consuming 2-3 percent less fuel than last summer. China imported seven percent less crude in July. Asia as a whole is still growing but they are cutting back on their oil subsidies which are reducing demand and Asian growth is showing cracks. For example, Japan and Australia’s economies have slowed down appreciably. In the meantime, European countries one-by-one are reporting deteriorating economic growth. Combine that with a strengthening dollar, and you get the Great Crude Price Pullback. So, how far down can oil fall? Whoa. Before the price of oil gets past $100, it has to go below $110. And that’s not a gimme. It’s not only a support level where prices have topped and bottomed before this year, it’s also where the 200-day moving average is resting now. Plus $110 is a pretty big round number. Not quite as round as $100 but round nonetheless.
If the price does get past $110, it still has resistance to overcome at the $100 and $85 levels.  But first thing’s first. Let’s see what happens to the price of crude once the Olympics are over. Let’s see what happens once China lets the million cars it kicked off the road back on ... once it restarts the hundreds of factories it shut down ... once it gives the green light for power plants to charge back up and begin polluting the environment again. And let’s not forget that it’s hurricane season. Or that the Iran talks are heading for another dispiriting breakdown. Double-digit crude prices? It sounds nice, but don’t count on it.
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