Can Oil Remain Bullish? Some Call the Commodity on its B.S., But Maybe Too Soon.

| Tue Aug. 22, 2006 2:19 PM PDT

Earlier this month, consumers and investors alike were bracing for another spike in gasoline prices after the Prudhoe Bay oil field shutdown. The New York Times and the Wall Street Journal discussed a price hike's impact on Americans' consumption patterns, Bush's "plan" for sustainable energy and the prevalence of ethanol. How will America handle another price increase?

But now investors might be facing a different question—what if there is no increase? The price of oil is on a steady decline this month, down 4.4%. If oil continues to decline, "it is going to be much more difficult to argue that crude oil remains a bull market and that all dips are buying opportunities," says Tim Evans of Citigroup. But, some analysts are convinced this is nothing but a dip in a sturdy market that will soon climb again -- they note Goldman Sachs' decision to reduce its exposure to the commodity and a smaller than expected impact of the Alaska pipeline shutdown as some of the short-term factors contributing to the lower prices. But others warn that the market has become accustomed to the "geopolitical uncertainty" surrounding the oil market. Deutsche Bank's Mark Vonderheide says traders are "balancing the fundamental weakness of this market against the probability of some global event or continuation of global events in Nigeria, Iran or Venezuela....Barring an event, it's very likely we're headed for much lower oil prices." "Barring any event" -- Perhaps, we don't need to be concerned about lower prices quite yet.

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