Oil Going Down, Just as It Should

Oil is finally doing what it should be doing: It is going down, and I think it goes to $110. I have been using that range, with that at the lower end of the range, but I might be too optimistic. The most important thing is that oil going down ends the huge tax on the American consumer even as it signals, again, that the recession is totally at hand.

It is entirely possible that the whole Iran thing goes the other way and Iran becomes more amenable to peace (although I believe it simply can't be trusted and remains, along with the Taliban, the source of almost all things bad and terroristic in the world), and you will see a giant amount of oil being released, and the commodity funds that own it will be forced to sell.

In fact, it was obvious that supply came into balance when oil hit $148, and as soon as it did, it was a dramatic moment that made it so that hoarding oil because of fear was no longer necessary.

One of the oddities of this decline is that it was always a given that the institutions that moved into commodities would never trade them; they would just own them. I believe that there are two kinds of funds: those that are indeed indexed to commodities but also those that have chosen to be nimble in commodities.

While the first ones may seem to dominate, I think that the latter need to liquidate badly or face redemptions. In fact, it is possible that both kinds of funds might be facing redemptions, but that could be too negative. Either way, there is a rapid glut of oil developing because of less fear about the need to hoard oil, because of a sudden Iranian issue and because the refiners have little demand at these levels.

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