Same thing happening in oil and unleaded. Below is a pretty cool unleaded chart.

A corresponds with the current price at B. C's correspondence to D is an example of a pretty freaky phenomenon that happens every so often, a market building into itself the potential for what will happen in the future by allowing for either of two opposite occurances. Statistically, the Katrina spike D is nearly irrelevant, allowing for the use of E as a corresponding point in the formation expansion. However, D did happen... which could allow for it's use in the future if a move occurs in perspective to it (Iran, etc).

We're currently at B. If the pattern continues to expand, we can look back to the price flows after A in order to get an idea of what could happen next.

Fundamentally, oil and unleaded should begin to come down. This will probably happen in a downward sloping channel with a final break if Iran continues to tame. Short term, consumers aren't cutting back much. But they aren't increasing consumption either. Already they are becoming used to $3 a gallon. Adjusting lifestyles to accomodate. It should take six months to a year for them to fully adjust, during which time demand should not increase, even worldwide demand. Eventually, tho, demand will increase beyond increasing supply, driving prices back up. This should happen over the next five years. We've examined the trends of SUV versus sub-compact/efficient sales and correlated them to the price of gas in order to arrive at the timeframe for consumer habits. They tend to lag the gas market by as much as a year, but this lag gets exponentially shorter as prices get higher (only took a few months at $3 a gallon). The trend is likely to remain towards efficiency for the immediate future even if gas comes down, consumers will remember that it CAN go up for at least a year. But this efficiency will not offset the growing number of consumers forever. And the efficiency trend will trail off as consumers go right back to craving power, power, power. This will happen as $3 a gallon gas is considered normal (which is already happening) and lifestyles and incomes have been adjusted enough to afford "necessary luxuries" (also already happening).

Then there is Iran and the Katrina phantom spike. Iran should be the catalyst for any major moves in the next four months. Could send prices either down hard or up harder. In the absence of Iran, oil should go down. If Iran settles somehow, oil will go down. If they don't...

Looking at the price moves following A, one can see a historical replay of what could happen if our consumer forecasts prove correct, which would call for a pretty decent move down from these levels. Put options might be the way we'll play this one if we get involved.

Cheers