Actually, oil was running at around $72 per barrel before mid east crisis began. It had touched $75 in April because of lots of geo political tensions had already been priced into that. Iran’s nuclear program, unrest in Nigeria, Venezuela putting oil fields under state rule, Iraq war going on and on, China’s growing oil demand, etc.
We both agree on housing slowing down and taking US consumer with it, right? How will it effect China until either Japan or China itself can create a consumer base able to replace the whopping US consumer? Why would you bet on oil and commodities with an impeding recession? China is suffering badly with huge pollution issues in main cities due to its inefficient use of oil and natural resources. As per the Chinese minister, China is going to increase energy efficiency by 4% this year increasing to much bigger %age in 5 years. note that with the huge pollution problems, China is facing, this is utmost priority for Chinese government and they can afford to sacrifice bit of growth for that. Also, when oil becomes expensive then after a certain threshold demand starts to drop. Even more siginificant is that this deman may not return as people will not remove insulation from their houses or sell their hybrid cars or remove solar panels from roof tops. So extremely high oil prices are dangerous for OPEC as they may drive the consumer to alternative energy sources and they may not return even when price has come down. So that covers the demand side of the argument.
Now to the supply of cheap oil. I have no idea about the rest of the geo-political issues but they can come up or get resolved as quickly and have been mainly affecting oil supplies. OPEC predicts to increase oil supplies from 4.2million to 6.1million by 2010. Important part of the supply side argument is about the time frame you are looking at. What is the time frame do you see oil hitting 100, 200, 300 per barrel?
BTW, I like COP, VLO as well as they are dividend paying companies that have some growth potential too. Do you plan to play the oil sector by investing in COP? Why not buy oil tracking ETFs if you are sure it will hit $100 since the upside is sweeter (COP stock may not hit $100 even if oil hits $100)?
