$39.70
-1.10 (-2.70%)
United States Oil Fund LP (ETF) (USO)
CAPS Rating:
The Fund is a commodity pool issues units that may be purchased and sold on the American Stock Exchange. It engages in the speculative trading of futures contracts and options on futures contracts.
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Oil has gotten ahead of itself somewhat. Demand is inelastic in the short run, but in the long run having it priced this high will cause demand to shrink. The idea that we've suddenly run out of oil is a bit overblown. To be clear, yes, if we continue to grow demand for oil at the pace of the past 20 years for the next 20 years, we will be unable to meet the demand. However, the growth in demand will slow as alternative technologies become available and cities get tired of being crowded with cars and pollution. Think what would happen if you continued to add cars to Beijing for the next 20 years at the pace they have been added for the last 20 years. It becomes ridiculous at some point because people would have to drive around in SCUBA gear because of the smog.
The easiest sign of a bubble is when you start to hear people making ever higher predictions of prices. "NASDAQ 10,000" I will never forget. House prices were the last example when "Flip this House" became part of the popular culture. A year ago, you could get a barrel of oil for $80 and $100 was considered to be crazy high. Now we are sitting at $120 and people are starting to say $150 to $200. I say when that happens its probably time to get out. A lot of new "experts" are starting to trade around in oil prices and currencies. They don't know what the %*(# their doing. It's a known bubble, and they are essentially betting that it will inflate more and they'll know when to get out. Why is oil $120? It's the speculators.
After what happened with the housing bubble and internet bubble, I think Bernanke will probably be interested in popping the current oil and commodities bubble before it gets too far. To do that he needs to just give them a surprise rate increase with the specific language "to eliminate the commodities bubble". THAT will do the trick. You won't see a bunch of motherf*ckers crowing about $200 oil again for a while. As leveraged as futures are, you'll see a lot of chumps walking out of the futures market without their shirts. Once they are out the door, Bernanke can lower rates again safely knowing that speculators are now on notice not to get ahead of themselves because he'll be watching. This commodities bubble is doing a huge amount of damage to the world economy. It is worth raising rates for a quick shock to get them back in line.
Yes we are getting close to the top but it is still (!) very hard to call a top on this market. The 115 day SMA and the 200 day SMA aren't even close to being breached. The chart is still rather bullish at this point even though there is a decent chance of a quick reversal to 90 (previous support) at this point. I also would say that Bernanke doesn't have any more room to cut rates after his recent signal to pause. If the credit markets implode yet again forcing Bernanke to cut rates yet again USO will certainly spike again as a result due to inflation fears.
I think I may have been wrong on this one. Oil has managed to stay up over $120 long enough to establish a new paradigm. It was only about 6 months ago that people were saying "Oh my God, oil may crack $100 per barrel." and then it did for like one contract before retreating from such a terrifying height. Well, looks like nothing much happened to dampen demand. We have politicians doing nothing, same as usual, so I expect that oil will stay above $100 for the foreseeable future. OPEC won't let it go back down anywhere near $70. New paradigm.
Oil is probably ready for a pullback to around $120. When it is high enough to start threatening the airlines with bankruptcy en masse, it is probably time to cool it for a while. I am not thinking it will go down in the long run, but I think the next move is down. The oil inventory report on Wednesday is as good of an excuse as any.