Oil reached the peak near $150/barrel in July 2008. Now just 5 months later it has fallen nearly 75% from its peak. Incredible amount of price destruction in such a short amount of time. As you can see from the picture in 2006 oil was around 65 and it look over two years time to reach the peak in July 2008. The time it took to come back to these lower prices was much swifter.
Now why did oil prices come down so fast so hard? After all the pundits were calling for $200+ oil. There were others calling for a shortage of the world's oil supply and that we won't have enough supply. The global recession changed that picture completely. No longer was the U.S and China, two of the biggest users of oil, growing as fast.
As a trader I'm asking myself, how much lower can oil go? What is a reasonable price? I guess with the markets you can take out reasonable. At times of panic and histeria, the markets and the people who drive those markets are no longer rationale.
What I know is this ... Once the market gets out of the slump and it will, although it may be later. When global growth resumes we will see that the oil prices will surge back up probably to the $70 level. That is a 50% increase. If I am able to get into futures contracts on this wave up, all I can say is Cha Ching!
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