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OPEC President Chakib Khelil Monday blamed the U.S. Federal Reserve for sky-high oil prices, The Associated Press reported, adding that surging prices are not likely to decline.Khelil said he believes the declining dollar has pushed oil higher and that the Fed's interest rate reductions to boost the U.S. economy are the primary reason for the dollar's decline, the AP reported Monday.
In an effort to jump-start the U.S. economy slowed by the nation's worst housing slump in a generation, the Fed has cut short-term interest rates by 325 basis points to 2% since September 2007.
Khelil's comments did not push oil higher as of early Monday afternoon. Oil traders looked past those comments and focused on the dollar's rise for the day versus the euro and pound, and new data points suggesting a deeper, longer U.S. recession, energy trader Jim Dietz told BloggingStocks Monday. Oil fell $3.70 to $141.59 per barrel, with futures hitting a daily low of $140.15 earlier in the day.
Oil traders adopt 'defensive' stance
"Right now the oil market is focused on the U.S. economy not OPEC's comments, and many were spooked by the Freddie Mac and Fannie Mae announcement. Everything is in pullback mode now, oil, stocks, gold, other commodities. The mood is defensive...preserve capital, basically," Dietz said.
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) may have to raise up to $46 billion and $29 billion in capital, according to Lehman Brothers (NYSE: LEH), Bloomberg News reported Monday. Fannie Mae fell $3.17 to $15.61 while Freddie Mac declined $2.51 to $11.99 in Monday afternoon trading.
Typically, a flight from stocks would boost oil, Dietz said. However, if traders and institutional investors sense lower demand everywhere - - i.e. a deeper or longer U.S. recession that affects demand - - almost everything, including oil prices, gets caught in the downdraft, he said. Dietz said the oil markets would need "at least two or three days" to determine if additional housing-related or bond-related write-offs are up ahead and/or if there are new headwinds for the U.S. economy. Dietz added that he was flat, or presently had no open energy trading positions.
Oil Analysis: Once again, OPEC's Khelil states a half-truth, presenting an inaccurate picture of global oil markets. U.S. Federal Reserve rate cuts have weakened the dollar, and that weaker dollar is responsible for a portion of oil's rise to $140, but OPEC's supply is a more important factor. Had OPEC increased production three years ago when oil started to rise above $45 per barrel, the safety cushion between global oil supply and demand would be considerably larger, and oil prices would be much lower today, probably trading around $85-$100.
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Reader Comments (Page 1 of 1)
7-07-2008 @ 4:55PM
william lindblad said...
Is the glass half full or half empty?? Trying to pass this one to OPEC is going to prove difficult. At lest 12% of pump price is the result of Fed action and another !2 or so, the result of speculation set off by the former. In plain English, this amounts to about 1.00. If gas were at 3.00 and diesel at 3.75 everyone would still be unhappy, but they would be able to live with it. AT CURRENT LEVELS IT IS BRINGING THE WHOLE ECONOMY DOWN. The argument for OPEC Arabia to produce more is total nonsense as they produce "sour" oil that is not the prime candidate for fuel production. You think that North sea Brent goes to the U.K and Europe? It goes to the highest paying market. One of the big problems here is our free market mentality of money first with no thought to where ones lives. The U.S. oil companies should be banned from flying the American flag. Wait until they drill in the Gulf, find new fields and than export all they can. Traitors in suits and ties.