Crude oil plummets and will plummet once more

wow ! crude oil prices are near $105 ! They touced $118 in the past two days so have fallen by over 10%. The Gustav storm has already hit, caused damaged, killed 94 people and blah blah... In fact all the oil facilities in Mexico have been shut. Despite this, the crude oil has fallen sharply.

What does this indicate? I think it means that factors of demand destruction which are pulling down the oil prices are quite strong. I have been writing about it, and it does not take much of an expert today to predict crude is going to fall below $100. Let me recall an argument from my previous post in the form of an open question to all.

Today's crude oil demand is comparable to the demand in June 2007. So not much increase in demand. The around 5% drop in crude-oil demand in US seems to more than offset the demand increase in the rest of the world. Does that mean crude oil prices will fall to the level of those in June 2007 ? i.e. touch $80 a barrel ? Remember the supply has increased after the Saudi's pumping in a few hundred thousand barrels more each day.

A small hint for myself : Wait for another sharp fall, buy a suitable Nifty put. Because October-November period is going to be bad ! Currently Nifty is trading over 4500. Another fall, another rise will take Nifty above 4700. I dont see how it can remain there for long.

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Sep 2, 2008

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