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Oil Prices drop in Asia

May 28, 2008

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Fresh News:
After what seemed to be an increasingly bullish phase starting from $90/barrel rise in February this year, to $135/barrel of light sweet crude oil, the prices headed south. A steep fall of $7 came on the back of profit booking in the futures space.

Now, there are two wide spread implications of this. Firstly, this fresh bearish phase came after what seemed to be a dawning of the fact, that if oil rises any further, it is but imperative that US economy will go down in recession. Thus damping oil consumption. I am not much buyer of this line of thinking, as China is a huge consumer of oil and energy. So yes, with recession in US, China will take a hit, but drop in oil prices due to this is something of an absurdity. I would rather like to subscribe to the fact that, profit booking is taking place. And yes, did I mention that the capacities of the distilleries has also increased [around 27%].

Now, a quick napkin analysis shows oil should fall further. Since Feb this year, it rose from $90/barrel to $135 levels. A rise of $45. Now the fall has come with oil prices trading at around $128/barrel. A fall of $7 from the peak. So that around 15.55% of the $45 surge. Normal Fibonacci levels are at 23.6% and 38.2%. Now that it looks to breach 23.6% levels, I would be inclined to expect another drop of 6-7%, thats around $3. Around ~ $124-125/barrel price.

Now this is happening right now in Singapore, as I am writing this. So this should give certainly reasonable markers for gold investors. Here is how.

Yesterday in the post ‘Gold-ed‘ I predicted that gold should fall from these levels to somewhat cheaper levels. I think the time has come when gold is indeed poised to fall. Not much but a bit. Why? Gold and Oil have been noticed to share very common sympathies. Primarily because profits from oil get invested in gold and secondly, rising oil points to slower growth and gold is an excellent hedge in this scenario.
So with this fall of oil, we should see some fall in gold levels as well. And keep your fingers on that buy button, for this bearish phase of oil is not expected to last long.

Happy investing, and yes as a parting note if you are in India,dont buy gold coins from banks with high premium. It tends to erode all the profit. πŸ™‚ .


Updates:

On Friday, May 30 Light Crude Oil extended the decline by around $4, i.e around ~$3 after the fall on Tue-Wednesday and presently trading at $126/barrel. July futures has fallen to around $125.57/bbl. Around $10 fall from highs of $135/bbl. More about it here
Analysis: With oil prices roaming around 23% Fibo retracement, the oil should rise from here.

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The usual disclaimer: Please note that I am not a qualified investment guru, and hence this does not at all qualify as an investment advise. Yes, but I do have my ethics in place. Unfortunately ethics does not make money, hence I would strongly suggest you to do your own research and follow your own analysis to make investment decisions.
But yes, if you like to read my take and think I have some sensibility in the noise and din of financial market, thanks,I actually love Cafe Coffee Day’s Chocolate Shake πŸ™‚ , or else you can give me a pat by subscribing to this blog, by clicking that big orange button on the left.

Disclosure: I don’t have any positions in oil or gold, but my friends or family members[whom I am advising] may have positions in either-or or both.

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