Inflation Adjusted Oil Prices Fall on Strong US Dollar

Oil prices (charts) have fallen $75.52 or 52% since peaking in early July of this year.

Click chart courtesy of stockcharts.com for full size image

This chart from "Chart of the Day" puts the decline in perspective. When adjusted for inflation, oil prices are now lower than they were during the Iran crisis and just after Hurrican Katrina spikes.

$WTIC = West Texas Intermediate Crude

Some on TV say the spike in the price of oil was driven by speculators, but this chart shows the weak dollar was also responsible.

Now that the global stock markets have melted down, investors around the World are seeking safe haven in short term US Treasury notes which is helping the dollar rally.

It appears the weak dollar pushed oil prices to the low $100s. Then trend followers and clueless speculators pushed it higher, which is normal in a free market.

Now that the speculators have fled and the dollar is stronger, the price of oil has fallen to just below the low end of the range expected by well known oil industry analyst Charlie Maxwell. See:

• Charlie Maxwell Says $300 Oil Inevitable: Charlie predicts oil prices between $75 and $115 for awhile. After that, he sees prices soaring again.
  
  
• More charts of Oil Prices
  

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Charts of US Dollar, Oil Prices, Gasoline Prices and S&P500

This graph shows the US dollar has rallied to a 1-year high (vs. the Euro), oil prices (WTIC) currently $100.87 per barrel, are down 31% since peaking at $145.66 earlier this year while the S&P500 trading at $1225 (more charts of S&P500) remains at bear market levels.

Click chart courtesy of stockcharts.com to see full size image

Consumer sentiment should improve now that gasoline prices are down significantly as this chart of gasoline prices, oil prices and the S&P500 shows.

With oil prices off 31% and companies like Federal Express (FDX) announcing higher earnings expectations largely due to lower fuel costs, can a rally in the S&P500 be far away?

==> More Oil Price Charts <==

For more information, see "Stock Market Returns After Oil Prices Double in a Year or less"

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

• Since 1/1/1999 through 6/30/08 my "explore" portfolio is up 175% while the S&P500 is only up 20% and Warren Buffett's Berkshire Hathaway is only up 71%
  
  
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• Newsletter (pdf) Story about my success

Don't delay!

Crude Oil Testing 2008 Support Levels

This chart, courtesy of Chart of the Day, shows the current trend of West Texas Intermediate crude oil (WTIC) was up and the price was testing support two days ago.

Click charts to see full sized images

The last two days oil has rallied over $10 from $135 to its current price of $145.48!


If oil holds support and rallies to new highs, then a point and figure chart courtesy of Stockcharts.com, projects $172!

If oil breaks support (the green line on the first graph) then we could expect oil to find minor support (via PnF chart above) at $118, $110 and $99.

This chart suggests support for oil prices at $100 and then major support at $80. Destroy enough demand for oil with a global recession or increase supply by drilling for more oil or with a serious effort to bring alternative energy sources online and the next major support level is $37!

Let us look at the US Dollar to get a clue which way oil will go on the long term.


It appears the US Dollar has stopped its decline since bottoming earlier in the year. Perhaps we will see a reverse of this decline if the Fed raises rates a symbolic 25 or 50 basis points to show it is serious about fighting inflation.

This next chart, courtesy of clevelandfed.org, shows 50% of people think rates will remain at 2.00% through September and over 25% think rates will be higher.

This greater than 75% expectation that the Fed will not cut interest rates further has given the dollar reason to stop falling. For oil to continue to rally exponentially means it is doing so without the aid of a falling dollar.

Note: I am only saying what the charts show as major resistance and support levels. I am not predicting these prices!

Chart of US Dollar vs Oil Prices vs S&P500

Some people on TV are blaming the Federal Reserve's easy money policy for the record prices for oil.

Sept 11, 2008 Update with charts

The chart below of the US Dollar vs. the price of oil (WTIC) vs. the S&P500 shows between early 1995 and January 2002 the US dollar gained nearly 50% when it went from just over 80 to 120 while oil prices were volatile but flat to higher.

Click chart to see it full sized

For more information, see "Stock Market Returns After Oil Prices Double in a Year or less"

If a falling dollar makes oil more expensive, then you would think a gain of 50% would make oil cheaper. As the chart shows, it is not that simple as oil prices went up considerably between the mid 1990s and the early 2000s but for a brief dip under $20 during our short recession in 2001.

For sure a falling dollar makes importing oil more expensive but it is not the main reason oil is so expensive. Oil is going up because supply is limited and demand is growing. A falling dollar simply makes us less competitive bidding for oil against other countries that have growing economies with stronger currencies.

If we want lower energy prices, then we need to

• increase supply
• Find more oil in other countries that are willing to ship it now
• Drill where we know there is oil in the US such as ANWR and off the coast of California and Florida.
  .
• lower demand
• drive more hybrids and PEVs,
• drive less by combining trips and car pooling
• take the bus
• take vacations closer to home
  .
• Strengthen our currency so our dollars buy more relative to others currencies
• Raise the Fed Funds Rate
• Eliminate deficit spending
• Grow our economy

None of these solutions are painless but we must do all or some of them unless we want to transfer the great wealth our nation has accumulated in the past 200 years to others in a single generation.

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

• Since 1/1/1999 through 5/28/08 my "explore" portfolio is up 196% while the S&P500 is only up 30% and Warren Buffett's Berkshire Hathaway is only up 83%
  .
• Subscribe TODAY and get the May 2008 issue for FREE!
  ...
• Newsletter (pdf) Story about my success

Don't delay!

US Dollar Gives Clues About Future Market Direction

Market lemming herders don't want you to know this, but everything may not be as it seems.
Am I the only one who gets really suspicious after the market is down 250 points in a day and it seems the loudest talking heads on TV "know" why it is and have ideas for "more of the same" on how to profit from it? When a good contrarian says something, it doesn't get the same attention. Maybe those with inventory to sell pay more for commercials?

Today's decline to start the new year was one of those days that makes me think the lemming herders were hard at work.

Market data for January 2, 2008:

Symbol Last Change
DJIA 13,043.96 -220.86
NASDAQ 2,609.63 -42.65
S&P500 1,447.16 -21.20

What if... Citigroup surprises everyone by NOT cutting the dividend, not writing off the worst case $18 Billion many analysts expect and not firing 10% of their staff when they announce earnings on January 15th?

What if... Oil, now that someone seemed to artificially print a trade at $100 just to do it, drops twenty, thirty or even fifty dollars in the next few months? After all, if the US dollar bottomed and starts to recover, then that should help bring down oil prices. The lemming herders are probably trying to get the last few off the cliff before they switch direction.

What if... we avoid a full blown recession as many analysists such as ECRI have been telling us is the most likely scenario?

What if....... the dollar really bottomed in November 2007?
I heard BofA downgraded Intel from Buy to Hold with a target of $26. Intel ended 2007 at $26.66 and finished the first day of trading at 25.35, 65¢ below BofA’s target. It went from 66¢ above to 65¢ below the target. That is almost as funny as the big financial companies downgrading each other AFTER they lost 20, 30 or 50% on the subprime meltdown. If they did not have a clue about their own business, then how do they expect us to believe they have a clue analyzing something complex like semiconductors and semiconductor capital equipment?

Everyone last year seemed to love Amazon.com, Google, RIMM, Apple, HPQ and many other users of chips yet the chip companies in the SOX did poorly. These companies do not have products to sell without chips (or fiber optics to make the networks run fast).

I am not one to try and time the markets with more than a few percent of my portfolio but if any of my “what ifs” come true, it could be fun to be long.

How do you spell "Massive Short Covering Rally?"