I agree with the peak oil arguments and would not be surprised if we see $100 oil in my life time. But knowing (or thinking you know) the long term direction of oil is one thing but turning that into profits is another because it won’t go up in a straight line.
If you look at the chart, oil’s been up with no meaningful interruption for several years now and probabilities are starting to favor a sizable correction even if the long term trend is up. Remember oil prices dropped like a rock in 2001 so if the current rounds of rate hike does eventually trigger a recession (or merely a fear of such), traders could use it as an excuse to drive oil prices way down.
For those of you who are zeal subscribers (I think there may be a few here), check out the gold/oil ratio chart dating back to the early 70s. At present, the ratio touched an all time low of 4 in mid-2005 then gold’s run up since last year push it back to around 8 now. And more importantly, there had only been a few instances during these 30 years where the ratio drops below 10 and usually it doesn’t stay that low for long before a significant rebound takes it back up. If you believe in mean reversion, then either gold is too cheap compared to oil or oil is too expensive compared to gold. That of course doesn’t mean that over the next year or so oil could not just hover around 60~70s while gold rises to catch up, but as I said before, I would not rule out the possibility that oil will be beaten down signficantly from these levels before it marches on once again to reach the moon.
Even though I’m a commodity bull, I’m preparing for it … at least psychologically for now.