Maybe a Top in Oil?

It is a cliché that they do not ring a bell at the top of a bull market, but there sure seem to be enough ringtones going off everywhere to make me wonder if we may be close to a top in oil and energy costs.

First the U.S. Senate is waffling and tap dancing on doing anything on global warming that might actually impose costs on taxpayers, irrespective of the fond desires of the traditional media and the so-called green lobby. (If the Senate passes anything, it seem that it will be with the assurance that it will never become law.) This suggests that even elected officials are starting to figure out that what the typical voter wants at a time of four dollar a gallon gas is cheaper fuel and energy for his car and home and plenty of it. This (admittedly only conjectured) flash of insight could lead eventually to less absurd public policy on energy production in North America.

Second, there are numerous stories of major discoveries of oil in the Rockies, off the coast of Brazil, in North Dakota, and other places and of discoveries of natural gas almost everywhere. If all or even some of these are true, the result could be a significant increase in non-OPEC production in a while.

Third, we are seeing a drop in demand for oil in the United States and seeing people making purchasing decision that will result in lower demand over time (such as buying cars instead of SUV’s). There is also the fact that average Americans think they are being cheated and are getting angry about it, and – despite the best efforts of the traditional media to focus the anger on American oil companies – are coming to see the Saudis, the Venezuelans, and other state-controlled exporters as the crooks they are. This is bad news for OPEC, and there is a chance they could want to nip these trends in the bud by increasing production to lower prices.

Fourth, the administration and the Fed seem finally to be worried about inflation and may be heading toward restraining inflationary monetary policies. It is harder to sustain inflationary bubbles without the fuel provided by currency inflation.

Finally, and this was the most telling for me, General Motors has just announce that it will close some truck and SUV plants, possibly dump the Hummer, and concentrate on small, slow cars that do not burn much fuel. Coming from a company that never gets anything right, this has to frighten anyone who is long energy commodities or stocks. It screams that buck fifty a gallon gas is just around the corner. Even worse, GM’s CEO said the recent shift in consumers’ interest toward economy vehicles is a permanent one. That ought to scare the pants off anyone who is long energy. That’s just pure new paradigm talk, and we know where that goes.

So, I wonder. Are we approaching (or even past) a top, or will tulips have to get really expensive for a while before we hit it?