Crude oil, which has declined about 15% since mid-December 2006 -- from $65 / bbl. to about $55 / bbl -- shows signs of declining further, but analysts indicate it's too soon to tell if there has been a major change from an oil bull market to a bear market. For more than three years the price of oil has increased, driven primarily by surging demand in Asia (primarily China), solid demand in the Western hemisphere, gasoline refinery constraints in the U.S., and geopolitical concerns (Iraq War, Nigeria's civil conflict).
The above factors, combined with oil producers' inability to bring new supply on-line quickly, produced an alarming bullish scenario of steadily rising distillate and gasoline prices, and the specter of $100 / bbl oil.
However, as noted, oil has recently sold-off sharply, and drifted toward key support levels at $55. Is the oil bull market over? Tom Bentz, oil broker with BNP Paribas, told Bloomberg News that "Traders have made the decision that no matter what type of winter we have, it's too little, too late" because inventories are high enough to get through the rest of the season."Given the apparent turn in trader sentiment toward oil, it is safe to say that the price of oil is correcting - but the bull market still may be intact - with the unusually mild weather this winter in the northeast U.s. playing a factor in the sell-off. Still, global oil demand would have to continue to moderate for the oil bull market to be broken, and few analysts are willing to offer that conclusion at this juncture.
Traders and oil analyst know that the market will need several more months of data points before they can conclude that the upward pressure on oil prices has subsided. In a declining oil market, airline stocks in particular benefit, due to lower fuel costs, as do retail & restaurant stocks, who benefit from an increase in consumer disposable income.
For now, though, hold all judgments regarding oil's long-term outlook, pending additional evidence.
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Reader Comments (Page 1 of 1)
1-05-2007 @ 5:52PM
Greg Morgan said...
If we are talking "bull" or "bear" in the short term there is room for argument. In the longer term, say five-year segments, only "bulls" appear to be in sight: continuing rise in demand and increasing difficulty in producing to that demand will result in prices that rise to the price of competing alternatives. In the intermediate term, say 10-30 years, this price will be high indeed. Later the price of oil equivalent (solar or fusion) will fall.
1-05-2007 @ 6:00PM
ernst winkler said...
The oil prices had been driven up by a wild speculation of traders, who would not even know the difference between oil and petroleum. The oil producers were not hesitant to accept these higher prices, although the number of future contracts at these high prices were getting smaller and smaller.This is the backbone of a capitalistic,free economy
At the same time the demand for oil from China, India and other nations has dropped, because the manufacturing plants in these countries have either been built,- as they were beeing built, the demand for construction and transportation were high,- or the plants are not operating at near 100% capacity any longer due to saturation in the markets worldwide.
The transportation sector is still going strong because of increasing tourismn and heavy shipping into the war zones of the middle east.
The recent publication of Petroecuador have given an intersting insight into the true costs of producing a barrel of oil at the well head. $ 4.75/barrel.
The cost in Ecuador is even higher than in the middle east.
Therefore, the oil prices will continue to drop, especially, when the US will continue developing more fields in the US. A process the Democrats have not supported so far.
The war risk premiums will become smaller with every day when Iran is left to itself, and the Israel war lobby will redirect its efforts towards seeking peace with their immediate neighbors in Palestine.
The question remains whether countries like Saudi Arabia, Iran,Russia, Nigeria and Lybia will support the falling trend by not curtailing their amount of oil which they will offer in the international market.
Here, a skilfully conducted diplomacy without military, open or implied, threats will create the real great statesmen of this decade. A rare opportunity for our president to build a great and lasting legacy for himself.
ernie
1-06-2007 @ 7:08AM
Gernot said...
The so called OIL experts seem to overlook the fact, that only 20 % of crude oil is finally refined into gasoline/diesel. The remaining 80% are being refined for petrochemical and asphalt products.