The oil-bears -- those who believe oil prices will trend lower -- have been an isolated, much-maligned lot for a considerable portion of the decade, but lately price screens have been moving in their favor.
Oil fell for a third day on signs the U.S. economic slowdown will continue into 2009, resulting in a further reduction in oil use in the world's largest economy, Bloomberg News reported Tuesday.
Oil fell $1.16 to $113.29 per barrel Tuesday. Oil's move lower was also aided by word that Russia had halted its military offensive against Georgia, Bloomberg News reported Tuesday.
U.S. demand: a factor in oil's price
While not underestimating the geopolitical risks -- and energy risks -- implied by a renewal of Russian expansionism in the twenty-first century, economist Peter Dawson said the important data point for investors / traders to watch is oil consumption in the United States.
"I'm in the camp that argues oil's bull run has been demand-based. Up through 2007, demand in the U.S. rose but this year we've seen a decrease in demand, particularly in gasoline consumption, as the price went over $4 per gallon," Dawson said. "Some tried to argue that oil was 'decoupled' from gasoline demand and from U.S. demand in general, but that thesis is being discredited almost on a weekly basis."
U.S. weekly gasoline consumption has declined for more than four months, on a year-over-year basis. The U.S Energy Information Administration will release its weekly report of U.S. oil/gasoline stockpiles Wednesday at 10:35 a.m. EDT.
Dawson said he did not want to imply that Asia is not a factor in setting oil's price: to-date Asia has been the location of the major oil demand increases in the decade. But "to imply that a pronounced U.S. economic slowdown and the accompanying reduction in global commerce would not slow energy use, was incorrect," he said.
After U.S. oil demand, Dawson believes European GDP growth, including the United Kingdom, is the second biggest factor affecting oil prices, near-term. If European growth continues at a 1.5-1.9% annualized pace for 2008, "oil will tread water around $105-110." However, if signs of a recession appear in Europe, oil will move toward and below $100 per barrel by year's end," he said.
Oil Analysis: While no one wants to see a recession in Europe, a continued pullback in oil to $105-$110 would ease inflation pressure in the U.S. and globally -- a welcome site for consumers and business executives alike.
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Reader Comments (Page 1 of 1)
8-12-2008 @ 1:21PM
big tex said...
Oil price is still too high and it is the primary cause of our crashing economy. Just to return to where we were 4 years ago it would have to drop another $70 a barrel and auto makers need to turn out a revolutionary auto that can deliver at least 50 mpg, for Christ's sake I had a 1960 VW I bought new for $1675 and it delivered 34 mpg. I would bet with today's technology that same car could be modified to get 50 mpg and probably burn either gas or ethanol.