Oil prices fell below $122 a barrel “on expectations that the surge in energy prices is depressing U.S. gasoline demand”. What the oil bulls don’t tell you, of course, is that a bubble asset like oil is most popular when it goes up and produces risk-free gains. An asset that drops $30 in 2 weeks is not risk-free. Hence, it seems less attractive. Investors get gold feet. If they don’t bail… they may well stop putting more money at risk.

We had started to predict a drop in oil prices several weeks ago. In fact, the invitation to join our new premium service Hot Stock Confidential was based on the analysis of money flows, as hedgefunds and industry insiders began to divert large streams of cash into U.S. refinery stocks.

Accordingly, refiners Valero (VLO) — up 3-plus %, Sunoco (SUN) — up 7-plus %, Holly (HCO) — up 5-plus %, are all in the green. If predictions of OPEC’s president come to pass, we could see oil back at $70.

Our own speculation on falling oil prices involves a U.S. refiner that not only has been artificially depressed by mishaps earlier this year… but has just added dramatically to its overall capacity.

Some analysts still predict that oil could trade at $175—or even $225—by December. But insiders and hedge funds are betting serious money on falling prices.

Source: Crude Oil at $122 Is Good News for Refiners Valero, Sunoco, Holly

With staple foods racing to record high prices, the world’s poor are feeling the pinch of the global food crisis. But the effects are not limited to the third world. Costco stores in northern California are imposing limits on buying of oil, flour, and rice reported a recent article in the NY Sun.

Dan Denning says to keep an eye on dairy prices, “No one is mentioning cows, though. Cows eat grain. Grain is more expensive. Dairy prices are rising as a result. Dairy Australia reports that East Coast dairy farmers are trucking milk all the way across the Nullarbor to Western Australia. Western Australia exports 20 million litres of milk a year to Singapore and Malaysia. But with local demand growing so fast, the cows in WA just aren’t working hard enough to meet demand.

What do you think the embedded energy cost is in a litre of Australia milk that ends up in Singapore? You have the petrol to power the tractor that harvests the grain that feeds the cow who’s milk must be refrigerated as its trucked across the continent via internal combustion engine to be transported on a coal or oil powered ship in containers made of plastic (oil) to Singapore where a lorry driver with a refrigerated truck that runs on petrol takes it to a store whose lights and freezers are kept bright and cool by coal-fired power. All so you can have some milk with your cake in Singapore’s fabulous Changi airport as your carbon foot print grows to the size of Godzilla’s paws.”