Oil plunged more than $8 to about $136 Tuesday at mid-day after Fed Chairman Ben Bernanke's indicated the risks to U.S. growth have increased as a result of credit market losses, Bloomberg News reported Tuesday.Oil fell $9.26 to $135.92 per barrel before recovery slightly. Oil hit a record of $147.27 per barrel on July 11.
The other major energy commodities, likewise, plummeted on the news. Heating oil plunged almost 15 cents to $3.91 per gallon, unleaded gasoline sank almost 17 cents to $3.39 per gallon, and natural gas plunged 44 cents to $11.51 per million BTUs.
"Oil in free-fall"
Energy trader Jim Dietz said "a mini selling frenzy" hit the oil market after Bernanke indicated the U.S. economy was likely to slow further.
"We did have some support for an oil-long trade earlier as an investment when few other investments are working, but that sentiment was quickly wiped out by Bernanke's comments," Dietz said. "We had oil in free-fall for about an hour. The market put 'two and two together.' We had the Fannie Mae and Freddie Mac bailout news yesterday [Monday] and Bernanke's bearish comments today. That led a lot of people to conclude we're going to see a slowdown in oil demand growth, which means lower prices."
Dietz added that he's presently flat, or has no open energy trading positions, after being stopped-out for losses with oil-long and gasoline-long trades earlier in the day.
Dietz said another aspect of trading contributed to oil's decline early Tuesday: profit-takers on oil-long positions.
"There are and were people in the market who bought at $120, $115, and $110 who were stopped out. When you see a downward move of this magnitude there's a tendency among some to take profits if they're pretty good size, particularly if you established a position at an elevated level above $110," Dietz said.
Ready to join oil bears?
Still, Dietz said despite oil's large drop Tuesday and research arguing, in some corners, that a plus-$120 oil price is unsustainable because it will squelch global economic growth, he's not ready to join the oil bears.
"The key remains decreases in global oil demand, not talk of decreases in global oil demand. The data I've looked at says demand is still increasing faster than supply. When it reverses and the safety cushion between supply and demand increases, I'll be bearish on oil, not until," Dietz said.
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Reader Comments (Page 1 of 1)
7-15-2008 @ 2:55PM
dr david hil said...
Oil and the dynamics of the global market are such that all nations will suffer considerably due to the unprecedented financial turmoil caused by the financial institutions themselves. The worst of the problems in this respect has yet to come. Indeed, if we do not watch matters carefully and central banks around the world do not intervene constantly, it will take a very long time indeed to get out of our present crisis. But this is only the first fall-out from an economic system that cannot sustain the human experience in this century. The reason, it is built upon the premise that there will be no unsolvable problems brought about by the very few becoming rich year-on-year and the many becoming poorer. Common sense has no part with the present global economic development model and where we are all marching towards a time where life will literally become unbearable. I do not say this but all pointers clearly state this. Therefore the human experience will witness in the not-too-distant-future the ramifications of our present ways of development and which are at the opposite end of the spectrum to sustainability and human survival.
In this respect when one puts the financial crisis together with changes in global climate, population at 9.5 billion at least by 2050 (UN projections), increasing crop failures and all the people in the developing/transitional world vying to have a standard of living of that in the West, we have basically the wrong thinking on global economics. For eventually this system has not the capacity to support and solve so many dire problems and can only eventually fail. Therefore we have to go to a more cooperative form of economics before it is definitely too late. The writing is now on the wall for all to see but where we insanely do nothing.
Dr David Hill
World Innovation Foundation Charity
Bern, Switzerland
7-15-2008 @ 3:04PM
dr david hil said...
Oil and the dynamics of the global market are such that all nations will suffer considerably due to the unprecedented financial turmoil caused by the financial institutions themselves. The worst of the problems in this respect has yet to come. Indeed, if we do not watch matters carefully and central banks around the world do not intervene constantly, it will take a very long time indeed to get out of our present crisis. But this is only the first fall-out from an economic system that cannot sustain the human experience in this century. The reason, it is built upon the premise that there will be no unsolvable problems brought about by the very few becoming rich year-on-year and the many becoming poorer. Common sense has no part with the present global economic development model and where we are all marching towards a time where life will literally become unbearable. I do not say this but all pointers clearly state this. Therefore the human experience will witness in the not-too-distant-future the ramifications of our present ways of development and which are at the opposite end of the spectrum to sustainability and human survival.
In this respect when one puts the financial crisis together with changes in global climate, population at 9.5 billion at least by 2050 (UN projections), increasing crop failures and all the people in the developing/transitional world vying to have a standard of living of that in the West, we have basically the wrong thinking on global economics. For eventually this system has not the capacity to support and solve so many dire problems and can only eventually fail. Therefore we have to go to a more cooperative form of economics before it is definitely too late. The writing is now on the wall for all to see but where we insanely do nothing.
Dr David Hill
World Innovation Foundation Charity
Bern, Switzerland
7-15-2008 @ 3:14PM
Buzz said...
Boycott NASCAR til prices drop down to post Katrina prices of $2.40 a gallon. People waste gas to go see NASCAR events, their huge outdated RV's & campers waste fuel. The race itself is wasting oil based fuels. Ban NASCAR events til we see better gas prices, end of story.
7-15-2008 @ 3:56PM
william lindblad said...
Joe, you believe what you want. I don't think much of what is reported and prefer to believe that the precipitous drop is more the result of the mention of the SEC reining in shorts. The bill in the Senate does about the same on the oil market. By tomorrow the details of the SEC move will be out and digested and if the oil traders can get around the move, than the drop will be gone by Thursday. Besides, there is a tropical storm brewing and anything that even looks like it is heading into the gulf will bring 150+ in short order. Recession or no recession, the U.S. is still going to have an oil appetite.
7-16-2008 @ 2:37AM
why25 said...
Read this http://www.moneythesedays.blogspot.com
7-16-2008 @ 10:37AM
tom hornbuckle said...
President Bush has saved the day once again by lifting the ban on offshore drilling!!