When the Federal Reserve finishes up its two-day meeting this afternoon, it is widely expected that we will be in store for at least another 50 basis point cut, and possibly more. In anticipation for another cut, oil prices have moved higher today, picking up $0.59 to $92.23.It was just last week that the Federal Reserve made the decision to step in with an emergency 75 basis point rate cut, but the consensus on Wall Street is that another rate cut is coming today, with the intended goal of putting a curb on America's slowing economic landscape. Oil traders appear to be banking on news of lower rates, and that has resulted in today's upward move in oil prices.
Since America is currently the world's largest oil consumer, any economic slowdown occurring in America will definitely have an impact on global oil demand. As recession fears have become more widespread since the start of the year, oil prices saw a 10%+ correction, falling from a recent $100 a barrel down to nearly $85 last week.
Last week's cut put oil prices back on the rise, and if we see another 50 basis point cut today, we could see prices slowly continue to creep back up towards the $100 mark. We still have a little more time left before the cold winter months are firmly behind us, and with all indications that OPEC is going to ignore U.S. President George Bush's plea for a production hike, $100 oil is definitely feasible over the next week to 10 days.
That is, of course, dependent on the assumption that OPEC will not lift its quotas this week. With oil prices recently trading at historic highs, President Bush went on a Middle Eastern tour earlier this month making his plea to OPEC that the oil cartel lift production to avoid causing economic slowdowns not only in America, but in all oil consuming countries. That plea was pretty much snuffed out earlier this week when OPEC officials started making hints to the fact that not only will they not be lifting production quotas this week, but that they would probably be looking to actually lowering the output later this spring.
OPEC's train of thought seems to be that a slowdown in America is inevitable and that slowdown is going to put a crimp on demand for oil. We will find out this week whether or not OPEC stands by that belief, or if the cartel decides to try to come to America's rescue, but don't be too surprised to see OPEC leave things as they are.
Also today is the weekly inventory report from the U.S. Energy Department. If it is a bullish inventory report, and the Fed cuts by 50, or even possibly, 75 basis point today, oil prices could be quickly moving up towards the $100 mark. Add on top of that an OPEC meeting at the end of the week will likely results in leaving output unchanged and you have the perfect recipe for higher oil prices.
There is definitely a lot going on with oil this week, it should be an interesting ride.
What are your thoughts? Where do you see oil prices headed over the next 3 of 4 weeks? Should be we expecting $100 oil, or prices reversing back down into the mid $80's? Give us your predictions!
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Reader Comments (Page 1 of 1)
1-30-2008 @ 11:17AM
michael schneider said...
The oil report today was bearish with the only + being low refinery utilization numbers (See oil Alerts- left side, light blue label- for trader comments on this mornings numbers). Oil inventories rose more than expected for the 3rd straight week.
Oil has still risen this morning on expectations of a rate cut so things are dicey now. However, nat gas prices are nicely higher- possibly more related to the cold weather in the Midwest. Moreover, the inventory report was only slightly negative and traders don't expect OPEC to do anything so we could still get a good oil rally if the Fed cuts by 50 basis points.
1-30-2008 @ 11:19AM
Michael Schneider said...
The Oil Alerts item mentioned above is at http://www.barrelomoney.com.