Joseph Lazzaro
DailyFinance
February 18, 2009

Investors should heed the advice of energy traders: tread carefully, if you’re considering an oil stock or an oil-related play.

  • A d v e r t i s e m e n t
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Oil, which plunged another $3.03 to $34.03 per barrel Tuesday at mid-day amid concerns of a deepening recession in Western and Eastern Europe, is a market in search of a bottom. It would be a technical and a fundamental stretch to say that a bottom will occur anytime soon.

Oil’s fundamentals certainly argue against a price recovery in the near term. The U.S. economy is in a pronounced recession, creating year-over-year consumption declines in oil and essentially flat gasoline consumption. Europe’s economy, both West and East, appears to be slowing more, and Japan in Q4 recorded its worst GDP performance in more than 30 years, falling at a -12.7% annualized rate. Yes, China’s economy continues to grow, but at only roughly half the 10% rate seen during the global boom. In sum, global oil demand is likely to decline in 2009 as it did in 2008 — that’s the International Energy Agency’s most recent forecast — the first consecutive demand decline since 1982-83.

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