There was no way that the market could avoid getting scuffed up yesterday as there was just too much disappointing news from the twin terrors of higher crude oil prices and the wrecked financials.

Actually, we received a break on crude oil prices which responded to a lower than planned drawdown in crude oil inventories in the most novel fashion, the price per barrel declined, who would have guessed? Crude oil and gasoline supplies decreased, however the latter was expected to see an inventory build. The ray of hope came from the increase of 2.6 million barrels in distillates driven by the build in diesel fuel.

Real data is beginning to catch up to anecdotal observations and conventional wisdom…demand is declining. In fact, a report from the American Petroleum Institute says that demand for gasoline decreased 1.0% during the first five months for the year for the first time since 1991, while oil demand was down 2.5%. 

I think that diesel prices will begin to retreat and may have found a short-term top. If the next big move in petroleum is driven more by demand than hype and speculation, then there could be a quick 5.0% to 10.0% correction.



The Solution

“Here at home we'll play in the city, Powered by the sun, Perfect weather for a streamlined world. There'll be spandex jackets one for everyone.”
-Donald Fagan

Speaking of anecdotal evidence, yesterday I saw my first hybrid taxi in Manhattan. I thought that the hybrid Toyota (TM) Camry was cool looking but too small for me. I remember the cabs in the 1970s, those massive bubble-shaped taxis that had the fold up chair embedded into the floorboard. I was real sad when they went out of circulation, but they couldn’t survive these days anyways. I wonder how long before they phase out the Crown Victoria (sorry, Ford (F)) as the main source of New York City cabs. It’s only a matter of time. The fact is that I think New York should just jump ahead of the curve and put a dome over the city. The dome could generate heat and energy. Then, the city should prohibit all cars from entering Manhattan. The mayor could purchase a couple million segues and people would simply walk up to any empty one, drive it to where they have to go, and park it in designated locations. Freight could be handled underground.

Of course, we could always outlaw driving which to me is the logical conclusion of trying to ban speculation in the crude oil market. If speculation is between 10% to 30% of the price of crude oil then demand is the rest. Heck, why ban the part that's only adding a tenth of the pressure when we could maybe cut out 90% of the reason crude oil is so expensive. Just think, one day this stuff will be worthless. It reminds me of one of my favorite “Twilight Zone” episodes. Four crooks steal a cache of gold bricks, hide out in a cave in the desert, and put themselves in a state of sleep for 100-years. They wake up, greed takes over, they fight each other, and one guy is left with all the gold. The problem is that he’s stuck in the desert with no food or water. By the time a vehicle comes by, he begs for a drink and offers up the gold, but it’s too late and he perishes.

The passenger in the car asks what the dying man was saying and the driver replied, “He was offering me gold for a drink of water.” Then, the passenger ponders for a moment before responding, “Wasn’t gold worth something at one time?” “Yes”, said the driver, “many years ago before they learned how to make it.” Maybe we could get the drug industry to find a synthetic version of crude oil and gold and put this entire charade to rest.