Oil closed down $3.14 to $115.61 per barrel, its biggest one-day decline since March 31, 2008 after BP plc (ADR) (NYSE: BP) said its Forties Pipeline System was back in operation, Bloomberg News reported Tuesday.
A rise in the dollar Tuesday also took some pressure off oil. The dollar rose about 1 cent to $1.5565 versus the euro on sentiment that the U.S. Federal Reserve may end its interest rate cutting cycle soon. Because oil is priced in dollars, it tends to rise when the dollar falls (and vice versa), as producers and traders bid-up the price to maintain purchasing power.
Dollar / oil connection
Further, oil fell despite comments by OPEC President Chalib Khelil that oil could hit $200 per barrel, and there would be little the cartel could do to stop it, The Financial Times reported, due to the falling dollar, among other factors.
Khelil told The FT that each time the dollar falls 1% the price of oil rises $4 per barrel, and vice versa. Independent energy trader Jim Dietz disputed that correlation, arguing that the price of oil is not simply a factor of the value of the dollar. "At the end of the day, production is the bottom line, not the dollar, and global production increases have not kept pace with rising demand," Dietz said.
"Short-term investors are also adding about $20-$30 to oil's price, but we will definitely need to increase production and decrease demand put a cap on prices," Dietz said. Dietz added that he was presently flat, or had no open oil trading positions.
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Reader Comments (Page 1 of 1)
4-29-2008 @ 6:51PM
mesotrader said...
OPEC obviously has a vested interest in high oil prices, so no doubt everyone takes their forecast of a $200 barrel with a grain of salt. I don't buy for a second that they are powerless to influence crude prices, as it's ultimately just a matter of supply and demand.
(my blog: http://www.scientifictrades.com)
4-29-2008 @ 7:54PM
Michael Schneider said...
T Boone Pickens was on CNBC today saying oil will go to $125 on fundamentals as the global demand is rising while there is an $85 cap on supply. He sees the solution as involving a shift to using nat gas for transportation and wind for power generation. Synopsis of his comments are available free in Oil Alerts (light blue label, left side) at http://www.Barrelomoney.com.
(T Boone has a new book btw on making your first billion!).
4-29-2008 @ 10:23PM
bill w. said...
OPEC should take care not to get so greedy that they cause a major world revolt. Americans especially are slow to anger but are fierce in their determination once pushed too far. Remember Pearl Harbor? This may be "Remember OPEC?".
Maybe we should stop worrying about what countries we might insult and start taking care of our own. The Alaska pipeline was for USA oil supplies, not Japan or China. Lets get smart before it's too late.
4-29-2008 @ 10:54PM
dan grover said...
I don't believe the supply and demand theory for one second. If oil companies thought they could make another buck on gas they would be building refineries one after another they haven't built any in 25 years! Why? because they don't need to!!! How many filling stations have you seen run out of gas lately?? Any?? Most likely not. Supply and demand is mearly an excuse to charge more period.
4-29-2008 @ 11:12PM
Marc A. said...
OPEC said there is nothing they can do about $200 oil price! how about increasing production?
For now, I would take advantage of the pull back to buy some Nat Gas stocks.
http://www.themarketnewsletter.com
4-30-2008 @ 5:55AM
Betty said...
Let's get some alternative fuel America. Who cares if gas goes up to $200 a barrel if we don't need it. Like it was said. Let's take care of our own and depend upon ourselves instead of Opec. We can make synthetic oil, why not gas if nothing else? Ever thought of that one?
4-30-2008 @ 7:58AM
uscyeahright said...
OPEC WARNS...... Can't do anything about it
What crap.
I guess WE'LL have to do something about it.
This is war.