EDITOR'S NOTE:

The following is a short excerpt from last week's issue of Secret Stock Files. And even though the piece does not deal directly with gold, I wanted to share it with you because I know that many Gold World investors also dabble in oil stocks.

- Luke

Crude contracts for June delivery hit an all-time high of $127.82/bbl this week in a rally that has advanced prices over 35% higher since the beginning of this year alone.

The rise in global oil prices over the past 6½ years has been largely based on worldwide supply/demand fundamentals. Oil prices have rocketed from $20/bbl in December 2001 as the world's largest oil fields and main suppliers struggle to increase production to meet growing demand and new oil field discoveries capable of significant production are very few and extremely far between.

I suspect that the recent run-up we've seen over the past few weeks, however, has had more to do with global financial market volatility than classic supply/demand fundamentals.

In the past six weeks alone, oil prices have spiked 28% higher as many major global companies reported severe fiscal losses in the 1st quarter of 2008. Among the biggest losers was Dow component and provider of insurance and financial services, American International Group, Inc. (NYSE: AIG), which dropped $7.8 billion in the 1st quarter.

Two weeks ago, the US Department of Commerce reported that initial 1st quarter figures showed a meager 0.6% in GDP growth. Those serving the Plunge Protection Team were quick to point out the small step forward, but failed to mention that quarterly inflation out paces this 0.6% increase, and therefore negates growth. Final GDP figures should be released later this month.

Meanwhile the US Department of Labor said today that jobless claims increased by 6,000 last week to 371,000 indicating further labor market weakness. And new data showed US foreclosure filings surged 65% in April since one year ago.

Why It's Time for an Oil Price Correction

Yes, we're in the eye of the storm, and I expect things to only get worse before they get better. However, I believe that oil prices have moved a bit too far from their supply/demand fundamental roots. And considering the rapid forward progression in the past few weeks, I think it's high time for a good old-fashioned correction.

Considering crude's momentum, we'll probably continue to see short-term strength...maybe up to $130-$135/bbl. But in the next few weeks I expect oil prices to pullback significantly. I believe that we'll see a pullback all the way back to near $100/bbl in a +20% correction.

What this means is that you'll want to start taking some of those big profits that you've made in your oil stocks over the past few weeks. Besides, it's best not to get too greedy anyway. The correction, of course, also means that you'll want to hold off on establishing any new positions in oil companies for a while.

I noticed this morning that even OPEC, now the world's source of two of every five barrels of oil, has begun signaling that oil is becoming overbought. The 13 country strong oil cartel released its Monthly Oil Market Report this morning that suggested a significant decrease in global oil demand growth during 2008.

"Oil demand growth is expected to experience the typical seasonal low consumption in the second quarter," the report said. "This year's summer driving season is not likely to show its normal annual growth due to the anticipated weaker gasoline demand in the US."

Over the long-term I still remain very bullish on oil prices as the supply/demand fundamentals and the connected imbalance will sooner or later come back into play. However, I think we'll see a decent set-back in the next few weeks. So, don't be afraid to hit the cash register on your oil stocks at this point. Take your profits now, and jump back in at lower levels.

Remember we're only here to court these stocks, not to marry them. Don't be afraid to break their heart.

Luke Burgess
www.GoldWorld.com

P.S. My colleague Ian Cooper is on an absolute tear with his oil plays in the Pure Energy Trader service. His tight-knit group of Pure Energy Traders just closed their 28th straight winning trade since November 30th. Each one is averaging 60%. If you would like to read more about Ian's success, and start profiting right alongside him, just click here.