The recent pullback in oil prices has some market participants speculating that the long commodity rally could be on its last legs. Barry Ritholtz of The Big Picture, though, doesn't agree. He's posted a chart plotting world GDP growth against oil production that seems to indicate that high commodity prices are here to stay. (World GDP growth in red continues to rise, while world oil production in black appears to have leveled off.) As Ritholtz points out, it's important to differentiate between a short-term and long-term trend in the commodities market:

"You don't have to be a technician to look at that chart and recognize something new is going on. Back in 2003, global GDP began pulling away from Oil production. Note that Oil broke out over $32 shortly thereafter, and never looked back. In the annual BusinessWeek forecasts (2004), I was one of a handful of strategists that picked energy as my top sector."

With that in mind, Ritholtz suggests that "the pullback in oil may be viewed as a short term trading opportunity." Certainly the commodity bulls would agree, as would the supporters of the "peak oil" argument. For members of the TradeKing community: Where do you see the price of oil heading over the long-term?

NOTE: Please keep in mind that TradeKing does not specifically endorse any of the securities or trading strategies mentioned. Depending on your risk-reward profile, this trade may or may not be suitable for your portfolio. The stocks mentioned are for educational purposes only.

[image: ITF Interim Report on Crude Oil via The Big Picture] 

As new technologies and fuel eficiency becomes more prevalent in vehicles, oil will start to be priced based more on low demand equaling higher prices rather than being supply driven. Supply and demand will no longer serve it's purpose of generating profits if we find ways to use the same amount of gas more efficiently, and ultimately using less gas overall.

Generational population increases will make up for some of the drop in demand, but not enough in my opinion to make up the continuing long term trend of lower gas usage by consumers. Now, if oil companies were making decent money at $80 dollars a barrel and even lower, than perhaps this is all good anyway. Lower gas prices will inevitably encourage more driving, flying, etc. so in the end it may all be a wash.

I realize that you asked specifically about oil, but gasoline is a large percentage of our world oil usage so they are almost synonymous at the moment. This may change in the future with higher fuel efficiency as well.

You've raised a number of good points about the future direction of the price of oil. At the end of the day, it comes down to supply and demand. Just as there are a number of factors that can impact demand - such as the development of new alternative energy sources, there are also factors that can impact supply - such as the discovery of new oil reserves in the Arctic or instability in the Middle East, Going forward, it will be interesting to see which price points (e..g oil at $80, oil at $150, oil at $200) will become the key triggers for changes in supply and demand.

- The TradeKing Blog