Why Did Oil Collapse And How Low Will Gas Prices Go?
Finally, oil has gotten crushed! We haven’t seen this large of a decline in oil in years as momentum speculators rushed out like someone discovering their Match.com date looks nothing like their picture! One can say that the decline in oil prices was sparked by fears over slower US economic growth, but who are we kidding? Someone who was long oil panicked, leading to more panic, followed by even more PANIC!!!
Perhaps the initial seller finally read, “Gas Prices Are Out Of Control And People Love It!” and spread it around. The point of the post was actually to highlight how ridiculously OVERPRICED gas prices are given how much reported supply we have (US$1 million more barrels/day in 2011 vs. 2010). If someone like me, who has a job and barely drives feels it, why doesn’t the rest of America feel it? America does, and its hard for fundamentals to justify such levels.
SO WHAT NOW?
Who knows where oil prices will go from here. Given most speculators are nothing more than momentum investors, you know that many of them who’ve been long oil have lost a lot of money. What happens when you lose a lot of money all of the sudden? You become shell shocked and end up doing nothing for a while until momentum returns.
It’s really too early whether the oil bubble has burst or not. Some analysts predict oil prices will now head to $80, while others think a resumption is not to far in the distant future. The fact of the mater is, nobody knows. The trader in me can’t help but look to buy some oil ETFs such as USO or UCO to gain exposure after such a steep 10% fall. But again, it’s just a hedge in case oil prices do resume their upward trend again.
I have to admit, if gas prices do start trending down 40-50 cents in San Francisco (10%), I will be ecstatic even though from a monetary stand point, it doesn’t save much much just as it doesn’t cost me much as a city dweller who takes public transportation.
If someone like me is ecstatic about a 10% decline in gas prices, then I surely hope the rest of America is as well! A happy consumer is a happy spender. Let Americans spend their gas savings on everything else to help spur the economy along. For the record, I think oil/gas prices will be higher than $100 by the end of 2011 as speculators return with better economic figures in the second half. I’ve sold in May, but I just might have to come back soon!
And now for some brilliant humor by Iman Crosson which highlights the main reason for why the commodity bubble popped. This is classic. Let’s raise them taxes on all Americans to save our budget. Two terms for sure!
Readers, do you think Osama Bin Laden burst the oil bubble? Will your “Consumer Confidence” tick up if gas prices decline by 40-50 cents? Where do you think gas prices are headed for the year?
Does WTI oil go to $110 or to $90 first?