It wasn't too long ago that oil prices seemed destined to be on their way through the psychological $80 barrier, but the past week has put the brakes on rising oil. Why? Well... you can blame , or thank (depending on which way you were betting) the slowdown in oil prices on the subprime mortgage market.That's right, you read it correctly. The weakness (meltdown) in the subprime mortgage market has made its way into oil prices. It was really only a matter of time before a connection and traders have finally decided to connect the dots. After all, the first domino to fall will be consumer spending, which in turn will result in lower oil demand by both consumers and corporations and thus lead to lower oil prices.
This impact is even more dramatic by the fact that we are also seeing rising oil supplies. These two facts combined are painting a more bearish picture than we have seen in a long while. For example, during the month of July, OPEC oil production rose last month by the most since September 2004.
What we are seeing so far today is oil dropping by $1.16 down to $74.32. Even though this is a decent $4 drop from the $78.77 high that we saw last Wednesday (a 5.6% sell off) this is still, by all standards, very high prices for oil. I don't want to put out the impression that oil prices are falling though the floor or anything, but we are seeing a decent drop in prices considering we are only talking about 3 days.
So, for now, don't expect to see prices mount the charge needed to blow through $80 a barrel, but at the same time I would be very surprised to see prices retreat under the $72 or $73 mark either. At least until the end of the summer, we should continue to watch oil fluctuate somewhere in the lower to mid $70's.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
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Reader Comments (Page 1 of 1)
8-06-2007 @ 11:39PM
Paul Eckerson said...
I don't think the new consumers in Asia are going to reduce their demand for oil. My bet is they will increase demand more then Americans will reduce theirs. We are still reducing know reserves faster than we are finding new reserves. This is only temporary....keep your panty hose on!