Records aren’t what they used to be. And I am not talking about the steroid stuff. Just take those old records off the shelf because there may not be a new record for oil in 2008. If you like records oil traders will have to live in the past. Year after year, oil has made record highs but this year, it’s not that likely. Every year since 2003, oil has broken the record high set the year before. This has been so common in this era of energy that new highs every year for many traders are just a given. Yet in the year ahead, unless we get a real cold winter or some unusual geo-political event, I doubt that the record high we established in 2007 will be broken in 2008.

Now I know what some of you are thinking. That perhaps I am some kind of frustrated oil bear that is out of touch with market realities. But let me tell you that is not the case. Even though I am bearish in 2008, over the last few years, there is hardly anyone out there that has more credible long-term bullish credentials. Not only have I have been a long-term bull throughout this entire decade, I was bullish before bullish was cool.

Being an oil bull these days is not a bold position to stake out. When I originally started to state the bull oil case, it was not exactly a popular position to take. I was one of the first analysts that warned the industry about the effect of China on world commodity prices. Oil, in late 1999 hit bottom and signaled a long term shift in the commodity cycle which made oil prices move sharply higher. Higher oil prices were not signaling doom and gloom, but rather, the improvement of standards of living for people all over the globe. High oil was a good thing that did not signal a recession but strong economic growth.

Last year, with the 2007 outlook, I compared the run in crude oil to a sports dynasty and correctly predicted that oil would set a new high. I predicted oil would hit $85 in 2007, a position I was criticized for when oil dropped to $50. Of course, not only did oil hit $85 but exceeded it. Now the same people who said we would never see $85 are so bullish that it would be crazy predicting $110, $120, and beyond.

Yet, this year I think that oil will not exceed the 2007 levels unless we get some type of major event (i.e. War, Hurricanes, etc). Oil is due for a breather in 2008 and why not, because it has been just one incredible run.

I feel that way because of how the US credit crisis affected the price of oil and the outlook for demand. Because of a little known fact that daily world oil production in 2007 hit an all time high of 86.43 million barrels a day last October, demand is rising but not as strong as projected.  Oil regardless, flirted with $100 a barrel but it is unlikely we will see that level in 2008.

In fact, I might contend that oil would have never got to the high nineties in 2007 if it were not for the credit crisis in the first place. Oil, put on at least $10 a barrel after the Fed and their surprise 50 basis point rate cut in October. That tanked the dollar and propped up oil. Commodity funds then bought oil, hedged the dollar with it and the market soared. In other words the Fed basically tacked on an extra $10 a barrel in 2007. Those 10 dollars the Fed added was the same $10 we would have gained in 2008 had it not been for Fed action.

You see speaking in rough numbers oil has been adding 10 a year even with all of the historic demand growth that we have had over the last few years. (Yes I know about peak oil etc.) But even with all the bullish arguments, $10 was the number.

This year was no different until the Fed worked its rate cutting magic. When the Fed intervened we added $20. So, because rate cutting probably gave us all of next years move in the last few months of 2007 and we added an extra 10 dollars in 2008, we will be hard pressed to extend this market much higher.

Demand growth in 2008 will be questionable due to the crisis, but production should rise. Less demand growth and more production probably means lower prices, unless something bad happens. We will see a drag in demand due to economic problems, but the bearish forecast is not all about bad news. It is also because the world looks to be a safer place in 2008.

The best part of my outlook for 2008 is the fact that geo-politically speaking, the oil market in 2008 looks much safer than it has perhaps since the attacks of September 11 2001.

In the 2007 outlook I wrote that, "The market spent most of 2006 living in a state of fear that was sometimes real and sometimes imagined. It was a year of Geo-political tensions with Iran and war in Middle-East." This year many were convinced that we would see a war in Iran and that Iraq was going to be a lost cause. (Just ask Senator Surrender Harry Reid) Yet the surge in Iraq has worked and it should mean more oil production from an unexpected source Iraq.

Al -Qaeda though still a threat, took massive losses in Iraq. Despite their boasts that they would destroy oil facilities they have yet to stage a successful attack on oil. The market is less fearful of Al-Qaeda in 2008 than they have been in a very long time.

Iran drove oil higher with fear in 2007. They took British sailors hostage and released them and caused much fear and loathing in the oil market. Yet nothing has happened. US intelligence shows that Iran dropped its pursuit of nuclear weapons, temporarily lessening the risk for a war in 2008.

There are peace talks again with the Israelis and Palestinians. And North Korea gave up its nuclear weapons. Libya is allowing foreign investment and has given up on supporting terror. It looks like the Bush Doctrine is starting to pay dividends and we are winning the war on terror. For oil that should reduce the terror premium and we should see dividends as we move forward.

Still, the Energy Information Agency, which is The Department of Energy’s information arm, is warning that Global oil markets will likely remain tight through the first part of 2008, in which I agree with. The EIA projects that world oil demand will grow much faster than oil supply outside of the Organization of Petroleum Exporting Countries (OPEC), leaving OPEC and inventories to offset the resultant upward pressure on prices.

The EIA Criticized OPEC for not raising their quota, but they failed to mention that OPEC did raise output.

The EIA says West Texas Intermediate (WTI) monthly crude oil prices averaged more than $85 per barrel in October and almost $95 per barrel in November, up $27 and $36 per barrel, respectively, from a year earlier. The daily closing spot price for WTI peaked at $99.16 per barrel on November 20, but started falling near the end of the month in anticipation of additional OPEC production and is expected to continue to decline slightly through 2008. Monthly average prices for WTI are expected to exceed $80 per barrel over the next year.

I think the EIA is high on the average as I expect crude will average $8025 while oil could hit as low as $6250. Yes, a bearish target for 2008! I know my long-term fans will be shocked.

So then we come to the products like gas and heating oil. 2007 was a very interesting and challenging year and one that will more than likely will not be repeated in 2008. We saw record high prices for gasoline and heating oil and had a slew of refinery problems that even called into question whether or not the NYMEX contract was still a valid tool for the world benchmark price. We saw historic crack spreads and historic price spreads between different grades of crude. We saw crude get landlocked in Cushing Oklahoma because of major outages at some major US refineries, which drove the price of WTI below the price of Brent. We saw oil on the Gulf coast soar while the prices at the Nymex delivery point got point-falter. Later in the year, things reversed and supplies at Cushing dropped as refineries started to come back on line and because of the problems, holders of oil sought other destinations for their oil. Some of our countries biggest refinery went down. Casual observers of the oil markets got acquainted with a place called Cushing Oklahoma as the fate of those stocks just drove the market.

But this year should be different when it comes to product as things are already getting back to normal. Finally, it is possible that we will see product prices also move lower in 2008