TheMarketTone.com

At 20.08 million barrels per day, total U.S. demand for crude oil is the lowest in five years. Also, the decline in gasoline demand over the past two quarters was the first significant decline in 17 years. It is clear that demand for energy is declining in the United States. This demand decline will not stop in the United States.

Currently the International Monetary Fund is predicting 3.73% global growth in 2008. This is 50 bps lower than in their forecast in January and 125 bps lower than the 4.94% growth witnessed in 2007. Given the slowing growth around the globe we are going to likely see demand for energy related commodities slow, which gives greater recognition to a longer term commodity slump.

Combine this evidence with historical sector return fluctuations; it becomes clear that the current commodity bull market may be ending. Historically, the sectors which led the market higher in the last bull market are not the sectors to lead the market higher in the next. The graph below shows two bull markets, one ended in 2001 and the other ended in 2008. Notice the sector which led the first bull market, technology, still had yet to return its losses in the most recent bull market. In fact, a completely different sector led the next bull market, energy.

So my advice to fellow investors is to sell your energy related positions. No matter how well they have performed over the past 5 years, history is proof that it can not continue forever.