Stocks rise and fall, bonds can reach default status, and housing? Well, we know what can happen to home prices, at least cyclically. But oil knows only one direction: vertical. Or so it seems, lately.Oil closed Wednesday up $1.17 to $109.92, another record-high close, driven to new levels of the stratosphere by the falling dollar -- which hit a new record low of $1.55 versus the euro -- and continuing concern that the U.S. Federal Reserve's credit market infusions will not be enough to prevent the U.S. economy from tailspinning into a deep recession. Earlier in the session, oil traded at an all-time high of $110.20, breaching the $110 level for the first time.
The other major energy commodities also closed higher. Heating oil gained about 3 cents to $3.03 per gallon, unleaded gasoline rose 1 cent to $2.72 per gallon, and natural gas rose about 1 cent to $10.05 per million BTUs.
Inventory fundamentals ignored
Moreover, oil's latest surge occurred despite a weekly inventory report that indicated that crude and gasoline supplies are plentiful in the United States, the world's largest oil consuming nation. Weekly crude oil inventories jumped 6.2 million barrels to 311.6 million barrels for the week ending March 7, 2008, the U.S. Energy Information Agency announced Wednesday. (pdf)
That inventory statistic was well above the 1.6 million barrel estimate analysts surveyed by Bloomberg News had anticipated, and oil did briefly sell-off on the news, to trade near $107. But as has been the case for much of the past year, the sell-off was a mere profit-taking pause before investors and traders piled back into oil.
Independent energy trader Jim Dietz told BloggingStocks Wednesday, "Oil has become largely divorced from fundamentals now," with oil-as-high-return-asset driving its price. Institutional investors, hedge funds, and other investors seeking a lucrative return on assets in the face of likely underperforming stocks and bonds in 2008, are increasing their positions of oil futures, he said. That fact, combined with the falling dollar, has produced an oil market where the bulls are firmly in control. Dietz added that he has long positions in oil and gasoline with monthly contracts.
Further, Dietz declined to predict a top, or a short-term high price, for oil, simply stating that "$110 is a done deal."
Impact on global economy
Economist David H. Wang said the global economy could be a done deal, as well, if oil's +$100 price holds.
Wang said a $100 oil price "is inconsistent with sustainable, substantial global economic growth," adding that in his interpretation it would not be unreasonable for leaders of the world's major industrialized nations to hold an oil summit to develop policies to lower oil consumption, to help lower oil's price, long-term. Placing restrictions on hedge / investment funds that establish short-term positions in oil -- another factor in oil's price rise -- are not practical, he said.
Before the bell: Futures decline as oil falls sharply; GM's bankruptcy plan approved
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Reader Comments (Page 1 of 1)
3-12-2008 @ 4:37PM
John said...
And ExxonMobil, like Kristen, goes down.
3-12-2008 @ 6:03PM
Xof said...
I find it funny that you keep mentioning "fears" of recession when we are de facto in a recession...
We have experienced negative real economic growth for two or more successive quarters of a year, jobs are down, growth is down, economy is down.
I think it's time to call it for what it is!
3-12-2008 @ 7:07PM
william lindblad said...
If this results in a recession, feel fortunate. In fact, this is a by-product of the housing market. The foolish lending practices that allowed greed to be part of the great American dream have turned a dream into a nightmare. Everyone has wants. Everyone has dreams, but they cannot be a fictional reality with the fiction being that you cannot afford it. It all starts here with the majority of harm being passed to those who never participated. This is what is now called a "credit crunch". The lending houses had to write down debt which started to shake consumer confidence. Those in financial trouble withdrew their contribution to the on-going economy as they stopped excess spending. The Fed intervened, made more money available and lowered interest rates and the dollar began to slide. Oil is traded in dollars and this inequity, plus increasing demand will only continue to push it's price at a record pace. Wheat and corn are at record prices and all with families to feed will feel the pain. Layoffs, shortfalls in budgets from local to state are all ahead. The private sector will fare little better except in the multi-nationals, that is, until they too are effected.
This is a snowball with a core of greed that is rolling downhill.
This could have been prevented. If anyone wishes to vent your anger - blame those that have the power to control the banks.
P.S. - It's not the Fed.
3-12-2008 @ 8:00PM
Michael Schneider said...
Oil rose despite the Bernanke plan which, yesterday, many commentators were saying would help the dollar and bearish oil inventory numbers. Oil is supported by technical reasons related to contract expirations (see trader comments on this weeks oil inventories in Oil Alerts- light blue label, left side- at http://www.Barrelomoney.com). Today, however it was headed down until the dollar started dropping as you note. Apparently, the Bernanke plan won't be enough to change the dollar slide and Jim Rogers today (see Channeling Jim Rogers section at http://www.Barrelomoney.com) was arguing that the injection of liquidity from the Bernanke plan will be inflationary. Seems like the market agrees for now anyway.