The winds of change are swirling around us. In politics, the United States will elect either its first African-American as President of the United States,or its first woman as Vice President of the United States in November.
In baseball, the Tampa Bay Rays are poised to make the play-offs and contend for the American League pennant. (The Tampa Bay Rays!?) And the New York Yankees most likely won't.
And in the oil market, oil is set to test the psychologically-important $100 level, only this time via a downtrend.
That's right, you read correctly: an oil price downtrend. Oil's slide continued Wednesday as initial reports indicated only minimal damage to oil rigs and refinery infrastructure in the Gulf of Mexico from Hurricane Gustav, Bloomberg News reported Wednesday.
Oil fell $2.10 to $107.61 per barrel Wednesday at mid-day. Oil hit a record high of $147.27 per barrel on July 11, 2008. The other major energy commodities also fell Wednesday. Unleaded gasoline dropped 5 cents to $2.68 per gallon, heating oil declined about 4cents to $3.02 per gallon, and natural gas sank 21 cents to $7.05 per million BTUs.
Energy Trader Jim Dietz said the operative phrase in the energy markets now is not 'hurricane' but changing economic winds -- the global economic slowdown. "Each week I review individual country GDP reports to cross-reference institutional data on economic conditions, and they point to one thing, a global slowdown," Dietz said. "If developing world oil consumption growth slows, oil will continue to trend lower, and we'll test $100 in week or less." Dietz added that he was currently short unleaded gasoline and oil, with monthly contracts.
Institutional investors: Cashing in chips?
Dietz said in addition to slowing GDP growth in the United States, European Union, and Asia, another factor is weighing on oil's price: institutional investors, including momentum players, who are reducing their exposure to oil as an investment.
"We all knew this day would come. Of course, we didn't know exactly when or the scope of the drop. Oil was $55 in October 2006 so the price almost tripled in two years, which was insane," Dietz said. "But momentum players helped push the price up, even though all research showed the global economy could not grow adequately with crude at $110 let alone $140. Then the lower GDP reports started coming in, people started reducing their positions in oil, and bang, we're set to test $100."
Is Dietz willing to say oil's rise constituted a bubble and that the bubble has burst? "I don't get into that bubble schmubble or labeling stuff. I just watch oil demand and calculate whether the price represents fair value in relation to that demand," Dietz said. "And right now, based on global oil demand oil is still overpriced."
Oil Analysis: Save investors in oil, oil's price decline is a welcome sight, but economists and analysts caution against exuberance. Global oil demand growth will have to remain modest for the price decline to continue in the quarters ahead. OPEC may also attempt to prop up prices with an oil production cut; OPEC meets in Vienna next week to discuss production quotas.
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