Oil Says: “Recession Is Coming”

Posted: September 22, 2011 in European Economy, U.S. Economy, World Economy

By Sean Hymen- As posted by “The Sovereign Investor”

The other day I was watching the King of Queens…

In the show, Arthur Spooner said to Doug Heffernan: “Yeah, back in my day I could really sell.” So Doug asked him what he used to sell.

He replied: “Gasoline.”

I couldn’t help but laugh at that. I mean, when was the last time you needed a salesman to talk you into filling up your tank? I’d say never.

In reality, we all buy gas because it’s a necessity, pure and simple.

Every day, gas prices shift because the underlying commodity – oil – moves in price. Oil moves in price because the worldwide supply and demand for oil is changing. That has major implications for the global economy as a whole.

As a trader, I watch oil prices (and gas prices) to get a clearer picture of what’s really going on with the economy. It’s one of the purest indicators I watch.

Right now, oil prices are predicting a recession. Take a look at the oil chart below and you’ll get a far more accurate picture of what’s happening in the world…

Oil Tells Us TWICE on the Chart That The Economy Has Turned South

There’s an old saying on Wall Street: charts don’t lie.

So if you want to know what’s really going on in the markets, and get a completely unbiased, accurate look at the economy, look at the charts.

That’s especially the case when you’re watching assets that are vital to the economy. And nothing is more vital or broadly used in the economy than oil.

As you can see from the chart above, oil prices peaked as we rolled into May. What do you want to bet that the economy had already peaked by then – if not before?

Then oil broke its uptrend line in August. That’s huge. Oil held this uptrend throughout the entire recovery, going back all the way to 2009. Breaking that uptrend means that the economy is heading south a lot faster than everyone is saying.

For the moment, oil is consolidating as it gets ready for its next leg down. The next leg down will be fast and severe. That’s when more and more people will see how bad things are “really” getting.

OPEC & Oil Shippers Agree With the Oil Chart

But to add to what the charts are saying, I found it interesting that OPEC and a huge oil shipper are both confirming what we’re seeing above too.

For instance, the CEO of RS Platou, Norway’s biggest shipbroker, said that as a result of slowing economies and curbed shipments, the demand for oil supertankers has dropped to zero!

He went on to say that America is importing the smallest amount of Persian Gulf crude in 14 years.

He’s also still expecting super-tankers to lose money for at least another year. Pretty sobering words from this CEO right? I think so. But he’s just confirming what I’ve been saying for a while about oil and the slowing economy.

However, OPEC is also backing up my opinion too.

On Monday, OPEC said that fuel demand will falter as economic growth in the U.S. weakens and as the debt crisis in Europe worsens.

In addition to this, the usable oil supplies are about to increase as Libyan oil comes back online according to an OPEC speech in Dubai. According to OPEC, Libya has only been able to produce about 45,000 barrels of oil a day, compared to the 1.6 million barrels a day that they used to produce as recently as last January.

So this will increase the supplies of usable oil available, but with a waning demand, oil will go down on both accounts (increasing supply & decreasing demand).

How to Cash in on $60 Oil and Lower

As a currency trader, I’m loving this pullback in oil. It’s the ideal opportunity to short the Canadian dollar.

You see, Canada supplies the U.S. with more oil than any other country. So when oil prices drop, Canada’s economy and currency suffer. Therefore, if oil is heading south…so is the Canadian dollar.

At the same time, when economies slow and oil prices suffer, the U.S. dollar tends to rally. Investors rush for the safety of the U.S. dollar like they did in 2008.

Knowing this, you can easily bet against the Canadian dollar, and buy the U.S. dollar for as long as this economic slowdown persists. (And unfortunately, that may be a while.)

This change in oil is already causing a pivotal shift in the dollar vs. Canadian dollar pairing (USD/CAD). However, the train has not completely left the station yet. So there’s still time to hop on board.

As a Forex trader, you can take advantage of this by buying the USD/CAD pair. As always, if you’re interested in trading this pair, be sure to set a stop-loss and profit limit to protect your overall capital.

Oil prices are predicting a severe economic downturn. But it doesn’t mean it has to be that way for your personal portfolio. You can proactively protect it by positioning yourself into the plays that will rally as the global economy slows.

Bottom line: a recession isn’t the end of the world. As the economy suffers, there will be plenty more opportunities like this.

Have a Nice Day!

Sean Hyman
Editor, Currency Cross Trader

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Comments
  1. BRAZ says:

    Could the OIL Prices possibly be manipulated … like GOLD? It seems like oil prices were pretty high in 2008 when i was seeing 4$ per gallon at the pump. If it went up to 5 , the slaves will start rattling their cages, and the elites know this. Only a matter of time.

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