Bear Market for Crude Oil? Profit from falling oil prices.
Today's Financial News - Posted August 8, 2008
Crude oil prices have dropped dramatically from record highs. What was behind the boom? What is ahead for oil? And how can you profit? Hot Stock Confidential’s J. Christoph Amberger answers all questions.
by Krista Das
Baltimore — (TFN): Crude oil hit historical highs near $150 per barrel this summer. Since then prices have declined. Experts blame a drop in demand, especially by U.S. drivers. American politicians believe the lifting of offshore drilling restrictions has relieved speculative pressure.
My guest today is J. Christoph Amberger, president of Today’s Financial News.com and editor of Hot Stock Confidential.
Christoph, welcome to the program.
Some analysts have stated that oil is now in bear market territory. What’s your take?
J. Christoph Amberger: Well, after a 20 percent drop from its recent highs, we’re very close to at least meeting the technical definition of a bear market. Of course it’s a very volatile market so I’d be inclined to wait it out for confirmation of the trend over the next three or four weeks.
Krista Das: A lot of analysts consider the run up in oil prices a result of demand from China and India. What factor do you think pushed oil from $80 to $150 in just six months?
J. Christoph Amberger: Well, obviously demand from China and India did not increase 100 percent over the past seven or eight months. So really what we have been seeing is speculative pressure and when I mean speculative pressure, it’s not the good honest trader generated speculative pressure. It is really a kind of lazy man’s investing lifeboat speculation.
All those fund managers who are out of ideas and short on profits who are piling into the one commodity or one of three commodities that are still generating profits for their portfolios and allow them to keep their job for a little while longer.
So it’s really the pension funds, the hedge funds who have driven up the stock price – not the stock price, but the price for oil, for gold and for a lot of commodities over the last couple of months and I think it may not continue to be quite as easy anymore.
Krista Das: So do you think the speculative pressure is over now or soon to be over?
J. Christoph Amberger: Well I think the speculative pressure now has a good chance of turning into a negative pressure. Speculative capital behaves like water. It always seeks the path of least resistance and in this regard, oil is no longer safe. It has risk. It has resistance so we will see pressure, negative pressure on oil and other commodities that will probably be good for a considerable down side for oil in the next couple of months.
Krista Das: What down side do you see for oil at this point?
J. Christoph Amberger: Well, just last week the president of OPEC pegged the down side for oil at about $70 per barrel. That’s over 50 percent lower than the recent highs. I’m not sure if I see it happening this year and the next couple of months, but I definitely believe we will see prices below $100 come fall.
We shouldn’t forget that the first push over the $100 benchmark was generated really by one single trader in the low volume trading days. I think once the speculators are out, we have a considerable down side left for oil.
Krista Das: What are the best ways to profit from a decline in oil?
J. Christoph Amberger: Well I think oil will continue to be in high demand obviously. India’s not going away. China’s not going away. Their industrial growth, even the maintaining of the status quo is going to consume vast amounts of oil and you never know if gas prices fall, American drivers may rediscover the SUVs again.
So I believe oil companies who have maintained a steady margin historically of between eight and nine percent, continue to be a good investment. I also believe especially oil refiners, U.S. based oil refiners who have been beaten to death by these high crude oil prices are an excellent investment with lots of upside right now because the dropping price of their basic commodity, crude oil, really has a direct affect on their margins and there’s a number of U.S. refinery stocks that we have been recommending, especially one that has several other catalysts built-in that we’re currently recommending to our Hot Stock Confidential subscribers.
Krista Das: Well, great. Thanks for coming on the show today and talking oil.
If you want Christoph’s best plays, check out Hot Stock Confidential by clicking on the screen or go directly to Today’s Financial News.com. That’s all for today. Until next week here’s to great profits from smart investing.
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November 4th, 2008 at 7:17 am
Hi,
Once again after crash Nifty has started going up. Now we suggest all rises should be used as an opportunity to exit old long positions.
This bull run will continue for few more days. Overall market is in bearish mood as in medium term its just a small rally due to short covering
and result season.
Happy Trading,
ShareGyan