Crude Oil Prices Dropped? Big Deal!

July 15, 2008

Crude oil prices dropped by the second-largest margin in history Tuesday. But before you give up on alternative energy stocks and use your stimulus checks as a down payment on an SUV, take a deep breath. The reality is that oil prices are likely to surge again in the coming weeks because of how complicated the crude oil situation has become.

I know that the top stocks in this market are energy stocks such as oil companies, and these picks have profited in large part because of soaring oil futures. There are some Chicken Littles out on Wall Street right now who would have you think that a crude oil bubble is about to burst, and anyone holding energy stocks is set to lose their shirt.

Don't buy it, friends. Tuesday's drop in the cost of oil was the largest single-day slide in dollar terms since 1991, when oil fell by $10. But in 1991, oil was trading at just $32 a barrel! Oil's "mammoth" price drop was only 4.4% Tuesday, which does not even crack the top 100 price declines in percentage terms!

There's a long list of stocks to sell right now, and I don't think many energy stocks are on it. First, there are big problems in the works for the cost of oil thanks to regional conflicts in the Middle East between Iran and Israel, and in Africa, where Nigerian guerillas are disrupting the country's output. Second, the Atlantic hurricane season is in full swing and that could severely impact the price of oil if a storm knocks out refineries on the Gulf Coast. Third, crude oil futures are traded in dollars and the weakness of our currency is painfully obvious as the euro briefly traded at more than $1.60 last Friday.

I could go on and on about the impact of speculators on the cost of oil, or the bottleneck caused by ethanol additives in the U.S., or skyrocketing demand for diesel in Europe. I could talk about limited access to new oil fields, or the many problems associated with wind and solar power as a solution to the crude crisis despite some alternative energy stocks that have a bright future.

Frankly, I don't have the time to expound on all these factors driving up the fuel oil prices!

A word of caution: Do not take this movement in the market too seriously. I warned you recently that I think a recession is brewing for the second half of the year, and I stick by that. The cost of oil will jump up again, and the problems caused by the financial sector are not going away anytime soon.

I've been telling you for a while now that the future is in commodity stocks, due to the persistent stagflation environment in the market. We're seeing commodity prices soar, and top oil service stocks and agricultural companies are cashing in on the skyrocketing price of crude oil and grains.

The future is still in commodity stocks, my friends. My Blue Chip Growth subscribers know this, and are raking in the dough because they buy the energy plays I recommend every month. In fact, I just added another to our Buy List on Monday! Two of my favorite picks, Transocean (RIG) and National Oilwell Varco (NOV) are up about 50% since we bought them in September!

Do you want to make profits like this? Then stick with commodity stocks benefiting from high fuel oil prices. I have some of the best listed in my Blue Chip Growth service. To find out what they are, JOIN TODAY for just $149!