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.