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Wednesday, June 27, 2012
In the last two months, the benchmark U.S. crude oil price has dropped more than 20%.
And it's not done falling.
As regular Growth Stock Wire readers may remember, I began writing about a collapse of the price of crude oil back on April 4. At the time, oil prices were still up around $105 per barrel.
Back then, I noted how the huge and growing U.S. oil inventories, coupled with growing U.S. production, would cause prices to drop. Since then, the price of crude oil has fallen below $80. Last week alone, we saw prices decline 6%.
Today, I'll show you why I think oil prices are going even lower...
The fundamentals of supply and demand remain out of balance in the oil market. Two months ago, I showed you how much more oil we had in storage than the 10-year average. Here's an updated chart...
You can see things have gotten even more extreme.
One important point to note is that usually, the oil in storage is declining by June as the summer driving season kicks in.
This year, according to the Energy Information Administration's data, the volume of oil in storage is still rising into the summer. It hit 387.3 million barrels at the end of last week. That's 11% more than it was when we checked in April. And it's 12% above the average for this time of year.
In other words, the world's largest oil consumer has a lot more oil around than it usually does. So supply is up, what about demand?
Turns out demand is way, way down. Gasoline constitutes 42% of oil demand here in the U.S. So we can use the volume of gasoline supplied by refiners as a rough gauge. In April, which is the latest data available, we see the gasoline consumption was about 344.6 million gallons per day. That's the lowest consumption for the month of April since 1997.
Demand is not only failing to keep pace with the huge new supplies coming online... it's actually falling.
It was a recipe for lower oil prices two months ago. The same is true today. I don't know exactly how far it could fall, but $70 or $60 is easily possible in the next six months.
Oil isn't the only commodity sector that's suffering…. Matt says small resource companies are going to fall further before resuming their uptrend. They're toxic for 99% of investors right now. But in the long-run, this market is doing us a favor...
"When it's over, we're going to be able to buy the highest-quality stocks in the sector for 2009 prices," Matt says. "That's when we'll make big, triple-digit gains." Get the full story here.
Brazilian oil giant Petrobras plunges to a three-year low... shares are down more than 50% in a little over a year.
Big tech stocks are humming along... Microsoft, Google, and Intel are all up about 20% over the past 12 months.
"Death of the PC" continues... Hewlett-Packard sinks to a seven-year low.
Solar stocks are among the worst-performers of the past year... First Solar, SunPower, and Suntech Power are down 75%-plus.