Oil drops most ever in one month, closes at $68

Posted Oct 31st 2008 4:39PM by Joseph Lazzaro
Filed under: Good news, Commodities, Oil

With the stock market's recent decline turning many 401Ks into '201Ks' (or worse), most investors/traders will no doubt say 'good riddance, October.'

Well, there was one 'positive negative' from a price standpoint in October: the price of oil, which recorded its biggest one-month price drop ever, plunging more than 32%. On Friday oil ended October by rising $1.85 to close at $68.13 per barrel. In February 1980, oil plummeted 30% to end that month at $13.26 per barrel in 1980 dollars, or about $28.90 per barrel in current dollars.

Oil prices have now fallen more than 50% in 2008 since hitting a record high of $147.27 per barrel in July.

The other major energy commodities closed mixed Friday. Heating oil rose 1 cent to $1.99 per gallon, unleaded gasoline fell 3 cents to $1.43 per gallon, and natural gas rose 11 cents to $6.55 per million BTUs.

Another OPEC production cut ahead?

Economist Peter Dawson told BloggingStocks Friday OPEC, which announced a 1.5-million barrel per day production cut earlier this month, may cut production again soon, but it's unlikely to put a floor under oil's price.

"Oil consumption is barely growing, if not flat-lining, in the developing world, and it's been declining in the U.S. for months. That's enough to keep oil inventories rising around the world and lower oil's price. If we fall into a global recession, oil is really headed for a tumble," Dawson said. "We're likely to see oil test $50 per barrel in the quarter ahead."

The drop in oil is good news for U.S. gasoline users, who should see an average price of unleaded regular "approaching $2.20-$2.30 per gallon," in the months ahead, Dawson added.

Oil Analysis: Another factor in oil's price decline: hedge funds/investment funds who are exiting long positions in crude, with some now putting short trades on. Due to decreased leverage in the new financial era, don't look for hedges and other investment funds to push oil's price down as much as they pushed it up during the leverage bubble, but their net positions should be bearish for oil, heading into 2009.

Tags: gasoline prices, inthenews, oil prices, OPEC

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Reader Comments (Page 1 of 1)

10-31-2008 @ 6:34PM

adam hartung said...

Too many business leaders are guessing at future prices instead of figuring out how to make money regardless of price. As we've seen, prices can fluctuate wildly. Yet, how many businesses are doing scenario planning to develop winning strategies at everything from $30 to $300 per barrel? Too little scenario planning has gotten a lot of companies into deep trouble this last year. Read more at http://www.ThePhoenixPrinciple.com