A long, long, time ago, I can still remember how the oil demand used to make me smile. And I knew if it had a chance it would make the oil dance and the bulls would be happy for a while. But the housing crisis made me shiver, with every buy order I delivered. Bad news on the doorstep, I couldn't take one more step. I can't remember if I cried when my Bear Stearns stock just got fried. But something touched me deep inside the day the de-mand died.

So bye, bye Miss American pie parked the Chevy by the levy because the fuel tank was dry. And good old boys were drinking whiskey and rye singing this is where the SUV dies. This is where the SUV dies.

Say good-bye to the myth that oil demand and gas demand will soar regardless of the price. The evidence is more than clear that oil demand is on the wane. Demand destruction is the word of the day as the evidence of that destruction permeates all around us. Where it is most apparent is gasoline demand that according to the MasterCard Spending Pulse report fell 3.8 percent last week. According to MasterCard that shows four months in a row of declines. I have been saying over and over that gasoline demand is lousy and that this was a sign that the larger economy was having problems. I have also said that it was a myth to believe that the US could slow down substantially and the rest of the world would not feel it. Well you can put that dream to rest.

Oh yes, the International Energy Agency raised their demand outlook for 2009 but it is because they are putting too much faith that the drop we have seen in China demand will be temporary. They also acknowledge that OPEC production hit an all time high. I do think China demand may rebound a bit but not to the extent that the IEA thinks. Plus the fact that OPEC can increase production flies in the face of what the critics said could not be done.

The EIA - the Energy Information Agency - on the other hand was more flexible lowering both demand and price projections. The EIA said in its Short Term Energy outlook that when the spot price of West Texas Intermediate (WTI) crude oil increased from $122 per barrel on June 4 to $145 per barrel on July 3 it was in part because of perceptions of tenuous supply in several of the major exporting countries. Yet by August 5, the EIA acknowledged that the price fell back to less than $120 per barrel.

So what did they do? They did what every self-respecting agency should do. They changed their forecast. The EIA said crude prices, which averaged $72 per barrel in 2007, are projected to average $119 per barrel in 2008 and $124 per barrel in 2009. That gets them closer to The Energy Report outlook. The EIA also says that the recent fall in crude oil prices has pulled down the retail prices for both gasoline and diesel fuel will lower that price outlook as well. The EIA says that the weekly price of regular grade gasoline, which peaked at $4.11 per gallon on July 14, averaged $3.81 per gallon on August 11, which was a decrease of 30 cents. Diesel fuel fell from $4.76 per gallon on July 14 to $4.35 on August 11, a drop of 41 cents. Annual average gasoline prices are projected to be $3.65 and $3.82 per gallon, respectively, for 2008 and 2009, compared with $2.81 in 2007. Diesel prices are projected to average $4.18 and $4.27 per gallon respectively, in 2008 and 2009, compared with $2.88 in 2007. That trims their gas price forecast by 4% to $3.82. They raised OPEC production forecast as well.

The EIA also said that China's oil use would be flat in the third quarter. As for natural gas the EIA says that the Henry Hub natural gas spot price averaged $7.17 per thousand cubic feet (mcf) in 2007 and is expected to average $10 per mcf in 2008 and $9 per mcf in 2009. Residential heating oil prices during the upcoming heating season (October though March) are projected to average $4.34 per gallon compared with $3.31 during the last heating season, an increase of about 31 percent. Residential natural gas prices over the same period are projected to average $15.58 per Mcf compared with $12.72 per Mcf, during the last heating season. The bottom line is that demand is faltering and we should continue to sell rallies.

Who’s afraid of the big bad bear? Sometimes it seems that end of a bull market in commodities comes like a thief in the night and sometimes they end even more unexpectedly. Yet sometimes we should be a bit more prepared when the great proverbial bull decides to change directions. As commodities made their historic run it was becoming clearer that this run on commodities was not being built on a solid foundation and was more like a house of straw. It was only a matter of time before the big bad wolf or big bad bear in this case would huff and puff and blow the house away. Of course in the world of bull markets we always get three little piggies or more that tend to get slaughtered when the market changes direction.

No I am not trying to tell you that I am holier than thou as I to have worn the piggy mantle in my starched white shirt. But what I am trying to say is that it is easy to get caught up in the excitement and forget that in commodities at the end of the day this is a profit taking business.

In fact many who have traded commodities can understand that when you are right the markets and you are on top of the world it is very hard to say when enough is enough. Why does it happen? We get caught up in being right the fundamentals of the market but we have a hard time trying to put into perspective what that means for price. When is high too high and when has price exceeded the level or got ahead of itself? We give back profits by being pigheaded and not realizing that even in the best bull markets there are corrections along the way. We all get more caught being right the fundamentals as opposed to making money. Sometimes greed exceeded reason.
The surging bull market in commodities that was that spent the year on the charge is now in the process of giving back a large portion of their gains. At the same time many traders that had fortunes made are also giving them back. The Key is why have the fortunes changed so quickly.

Over the last few years to me it was clear while oil was driven by strong supply versus demand fundamentals but this year it was driven by fear. People bought oil as a hedge against the dollar and a hedge against risk.

Yet many thought it was all about China demand and peak oil. They followed the wrong fundamentals and were fooled into thinking that the run was all about peak oil. Of course it did not matter whether they were following the right fundamentals or not, if you were bullish more than likely made money. Of course by following the wrong fundamentals might be fooled into following the wrong fundamentals.
But now the risk play is coming off. Demand destruction is more and more obvious. We have the dollar revering and the rest of the world currencies coming back to earth. OPEC is warning of a supply glut as demand falls into a deep rut.

It looks like oil is headed back to double digits. Also it is time for you to sign for your free trail of AlaronEnergies and your copy of the Phil Flynn Energy Blast! All you have to do is call 800-935-6487 or email me at pflynn@alaron.com also it is time for you to check out the Fox Business Network.