Oil fell below $110 a barrel on Tuesday for the first time since April as traders bet the U.S. oil industry would recover quickly from Hurricane Gustav.
Early indications that oil installations suffered only minor damage from the storm returned the market's focus to bearish factors including slowing global energy demand growth, rising inventories and a stronger U.S. dollar.
U.S. crude settled below its 200-day moving average price for the first time since May 2007, which is considered by many traders evidence that prices may fall further. Oil prices have tumbled nearly $40 a barrel since the July 11 record high of $147.27 as bullish sentiment has evaporated.
What happens to the price of crude, next?
“We’re not very good at forecasting crude prices, says Tesoro CEO Bruce Smith on Fast Money. However, in the broad scheme of things Smith expects to see oil reverse its bull run. “I think we’re seeing the mirror image of what we saw over the last 12 months. We saw crude really run up the wrong way, lacking fundamentals,” he says. “And I think we’re seeing the reverse of that now.”
Of course, Americans are driving less because of prices at the pump. That's led to significant demand destruction. “I think you will see the industry respond (to demand destruction) by taking capacity out and then margins will improve."
Smith is optimistic that business will improve in the near term. "Profitability is all about crude price and for us it’s about trying to find the best value in crude day in and day out,” he concludes.
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Trader disclosure: On Aug 28, 2008, 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 (WMT), (MSFT), (UUP); Macke Is Short (TM); Najarian Owns (ETFC); Najarian Owns (LEH) Put Spread, (LMT) Put Spread; Najarian Owns (SCHW) Call Spread, (LEH) Call Spread; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (AAPL) And An (AAPL) Collar; Najarian Owns (XLF) And An (XLF) Collar; Adami Owns (C), (GS), (INTC), (AGU), (MSFT), (NUE), (BTU); Finerman Owns (GS); Finerman's Firm And Finerman Own (KALU); Finerman's Firm Owns (MSFT), (SUN), (VLO), (TSO); Finerman's Firm Is Short (BA); Finerman's Firm Owns (AAPL) Calls, (JCG) Calls; Finerman's Firm And Finerman Own (C) Leaps; Finerman's Firm Is Short (IYR), (IJR), (SPY), (IWM), (MDY)
Gartman Owns (SJT), (UNH), (QCOM), (TRLG), (CSCO), (AAPL), (SU), (PBR), (MCD), (SDS), Gartman Owns (ANDE) And Is Short (ADM); Gartman Is Short (TAP), (GS), (GRMN), (UYG), (GOOG), (POT)
CIBC Gartman Index Is Short Crude Oil And Is Long Natural Gas; CIBC Gartman Index Is Short Sugar; CIBC Gartman Index Is Long Grains
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