Yesterday, we took a look at falling oil prices, and that trend has continued today, sending prices below the $100 mark. As we mentioned yesterday, the selling was coming as traders have turned their attention to demand, and that is the same story that we are seeing again today.Right now prices are trading just slightly higher than the psychological $100 barrier, at $100.31, but only a short time ago prices had retreated all the way down to $98.65.
One thing that we always like to keep track of is the weekly inventory reports from the U.S. Department of Energy. These reports are typically issued each Wednesday, and going into yesterday's report analysts had been looking to see a rise of 2.3 million barrels. While the market was given news of rising inventories, the numbers were actually much lower than had been expected, with an increase of 200,000 barrels.
So why the sell off? It comes down to the overall assumption that the recent run up in prices is beginning to impact global demand. This is the first time in a while that demand is being brought to the forefront. In fact, this was the ninth out of the past ten weeks that we have seen inventories rise, and yet prices have continued to head higher during these past couple of months. What is different this time is that we were also given the news that demand over the past 4 weeks was 3.2% lower than the same 4 week period last year.
It can easily be argued that the recent run up in prices had absolutely nothing to do with fundamentals. The majority of the reason we saw prices trading up towards the $110 mark was more a result of traders looking for a safe haven from the falling dollar. As we all know, a weak dollar will lead to rising oil prices, so it made sense, but it seems like we have hit a tipping point and the market is selling off and looking for a point of equilibrium.
Right now it is looking as though traders are looking for $100 to be the point of support for prices, but we won't know that for sure for another couple of days. If oil can not hold above $100 we could see prices making a quick dash down towards the $95 or even the $90 level by this time next week.
Should be an interesting week. What are your predictions? Where are you betting oil will be trading this time next week?
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Reader Comments (Page 1 of 1)
3-20-2008 @ 11:51AM
John said...
I guess I don't think it matters. The only way to have lasting low barrel prices is global recession.
Want one?
If you want growth, this is the new fundamental - barrel prices will go up aggressively during growth periods.
3-20-2008 @ 1:34PM
cindy said...
We should get used to high oil prices no matter what the demand is today it will never be enough for the future. When the US economy picks up and housing starts to head back up oil will be needed more and more. So prepare for it to rise higher and higher in the US and globally