Analyst says oil bubble may soon burst

Oil prices may be poised for a significant decrease in coming months, but that may not be a good sign for the stock market or the U.S. economy, says Michael Sadoff, an Milwaukee-area investment analyst.

Although oil prices have fallen off in recent weeks, they may fall far more in coming months, according to analysis by Michael Sadoff, an investment manager with Sadoff Investment Management LLC.

Oil was trading at $114.45 per barrel on Monday afternoon, down significantly from highs of more than $140 barrel earlier this year. "It came down at the end of the month (July), and it’s starting to break through now," Sadoff said. "If you compare it to other bubbles like housing and technology, once you see things start to break down, there will be a little rally, and then there is another breakdown where the acceleration starts."

For example, Sadoff said oil’s price could rise to the $125 to $130 per barrel price, then fall again. "When it gets below $110 again, all bets are off," he said.

A great fall in oil prices will not be good news for the U.S. economy, Sadoff said, because the price decrease seems to indicate falling demand, which indicates an economic slowdown.

"Falling oil prices are good, but the reason why is not that great," he said. "This could be a dangerous thing for the stock market. People thought the market would rally when oil fell. I think we may run into trouble when people figure out why oil is falling. It will be very worrisome to for the market. It could be weeks or months, but it’s worth keeping an eye on."

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