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Will Oil Get High On Its Own Supply?

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Is the weakness in energy prices a signal that an economic slowdown is imminent?

Tradition Energy Director of Market Research Addison Armstrong joins the panel for this conversation. Following us a synopsis of his main points.

Although crude could reach $100 soon, I expect over the next few months that oil will head toward $70 on slowing global growth and a stronger dollar says Armstrong.

This year's rapid rise in crude has been fueled in large part by a weakening dollar and the phenomenon known as “backwardation” which is where oil suppliers look to take advantage of high prices by selling available inventory, he says. That, in turn, leads to a vicious cycle, where inventories are kept low and crude prices remain high.

But the dynamic is changing Armstrong says. As prices fall, oil suppliers will be less inclined to sell, leading to more supplies and perhaps lower prices.

For a trade, sell the integrated names, and keep an eye on the US refiners says Armstrong. There are new refiners in India and Japan which are building capacity and plan to bring product into the California market. That could dampen margins for refiners in the US, Armstrong explains.

Dylan Ratigan explains the UltraShort Oil & Gas ProShares (DUG) is an exchange traded fund that shorts oil.

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Trader disclosure: On Dec. 18, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (YHOO), (DIS), (INTC); Najarian Owns (BIIB), (C), (ETFC); Najarian Owns (GOOG) Options, (GS) Options, (WYNN) Options, (YHOO) Options; Finerman's Firm And Finerman Own (GS); Finerman's Firm Owns (SUN), (TSO), (VLO), (YHOO); Finerman's Firm Owns (BEAS) Options; Finerman's Firm Is Short (SPY), (MDY), (IYR), (IJR), (IWM); Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Finerman's Firm Owns (MSFT) Calls; Finerman's Firm Owns Russell 2000 Puts; Finerman's Firm Owns S&P 500 Puts; Finerman's Firm Owns (MDY) Puts; Charles Schwab Is A Sponsor Of "Fast Money"; Armstrong Is Long The U.S. Dollar Through (UUP)