Oil Price Correction?

I am now hearing reports that oil's price will drop 20% this year to something like $55 a barrel. I find this in http://www.cbc.ca/cp/business/060419/b041964.html, but don't go there after a few days; you probably will get "not found". Instead I quote some of it here:

The recent runup in commodity prices is due to speculative activity that sets the stage for crude-oil and base-metal prices to drop by 20 per cent by year-end, a TD Economics report (TSX:TD) warned Wednesday.

This comes from CBC, the Canadian network. The article says that a correction in both energy and "base metals" (including gold) will occur sometime this year.

Do these people know that peak oil is coming?

Now I do think that retractions in oil and gold prices do occur. A major correction occurred last year when Hurricane Katrina hit, taking refineries off line and preventing crude from being refined, decreasing its value. I lost thousands (which I have gotten back this year) during this time. Most of these are small contractions and they are followed by big increases, which are happening now.

This is because oil may be nearing the peak where no matter how hard the suppliers pump and pump, they still can't meet world demand. The world market is tight as a snare drum, and any disturbance in it causes immediate reactions. Oil and gasoline will continue to increase in price in the next few years as demand rises, and supply stays the same for a while, then declines.

I am not sure I want to keep shuffling money in and out of energy shares every time Ahmadinejad goes nucleuckoo in Iran or hurricanes smash rigs and refineries in the Gulf of Mexico. The long term trend is up, then up, then way up. I am just hoping supply and demand will help us find alternatives before some really drastic things happen. It's going to be nip and tuck. (that's why I call this blog Cliffhanger). But a change once or twice a year might be advisable.

So what do I predict? I think oil and gold will keep rising through the middle of the summer, to $3.10/gal and $75 a barrel by the end of April, $3.30/gal and $85 a barrel by the end of May, and up to a peak of $3.45/gallon and $95/barrel by the middle of summer. It then will decline to about $2.40/gallon in December and maybe $75 a barrel, and then rise again in 2007, to even greater heights. If a hurricane strikes in the Gulf, oil will hit $90/barrel and then decline moderately, maybe to $65 a barrel by October, while gasoline will hit $4.70/gallon and there may be shortages.

So what to do about stocks and other investments? I say hold on to those energy and gold shares, because they are not ready for a correction. They will continue to head upward for a while. Sooner or later, probably late summer, the US and world economies will be hit by these prices and a downturn will occur. This has not happened yet. People are still driving all over the place as before. When the downturn occurs, oil and gold prices will go down. So if there are strong signals that this is happening, pull out of oil and gold shares. In fact, pull out of all stocks and put everything in money market funds. When oil and gasoline start rising again, then put the money back into oil and gold. If a hurricane threatens the Gulf, pull everything out, including oil, gold, tech, medical, and everything else, immediately. Being able to access weather models such as the Global Forecasting System (GFS) can help you decide this will occur before the media starts harping all over the place about it, so you can pull out and retain all of your gains.

But even if you pull back, eventually get back into oil and gold, for the money of the future is in these, with oil in ever increasingly scarce supply.