The Aggressive Investor

Article Excerpt

Today many investors assume the price of oil is bound to keep rising indefinitely. Mostly they base that view on the potential for increased car ownership in India, China and other newly industrializing countries. To top it off, they assume that all the world’s great oil finds have already been discovered. It’s hard to disagree with those assumptions or that line of reasoning. However, the resources sector and oil in particular have always been highly cyclical and volatile. Eventually, world oil demand growth will stall or go into reverse, even while third-world car ownership keeps rising. This might happen because oil consumers decide prices have gone up too high, so they should use up some of their inventory.This could spur hedge funds and speculators to dump their oil holdings. (Note that the U.S. has just decided to quit buying for its Strategic Petroleum Reserve, which now holds oil equal to 58 days of U.S. oil consumption). Looking a little further ahead, an…