Oil, which traded Thursday afternoon down 66 cents to $55.50 per barrel, has more or less been in free-fall since it became clear about two months ago that both the U.S. and global economies were slowing.
'A veritable sea change in sentiment'
Oil has plunged more than 60% since hitting a record high of $147.27 per barrel this summer, as both long-term investors and short-term traders exited long positions in energy markets. Energy Trader Jim Dietz was one of those short-term longs, who now is decidedly bearish.
"What we have seen is a veritable sea change in sentiment. Less than a year ago there was talk of $175, even $200 oil with spot supply shortages. Now, it's clear $147 oil was a bubble-ish frenzy, and people can't exit their positions fast enough," Dietz said. "There's even talk of an actual decline in global oil consumption in 2009." Dietz added that he is currently short oil, unleaded gasoline, and natural gas, with monthly contracts.
The other major energy commodities also continued their nearly four-month decline Thursday. Heating oil fell 2 cents to $1.81 per gallon, unleaded gasoline declined 3 cents to $1.22 per gallon, and natural gas fell 27 cents to $6.11 per million BTUs.
OPEC, which accounts for about 40% of the world's oil supply, cut production earlier this month by 1.5 million barrels per day, effective December 1, citing falling prices and the global economic slowdown.
Several price projections from oil research firms see oil trading between $60-80 per barrel in 2009, but Dietz, who specializes in monitoring oil demand, is quick to point out that many of those projections assume both a U.S. economic recovery and an increase in oil demand in emerging markets. Both are debatable points, Dietz argues.
"Right now, the U.S. economy is showing almost no signs of an economic recovery, and if we get signs that emerging market demand is flat, or declining, oil will be headed lower. Much lower," Dietz said. "Under that scenario those $60-80 forecasts will be fiction and oil will be lucky to hold $40."
Oil / Economic Analysis: The decline in oil and gasoline prices is welcome -- it acts like a tax cut for the U.S. consumer, but that should not distract the new U.S. Congress from weaning the country off oil use. Large per capita oil consumption helped create those high gasoline prices in the first place, in addition to creating many other macroeconomic problems, including a large U.S. trade deficit.
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Reader Comments (Page 1 of 1)
11-13-2008 @ 4:47PM
Gary H said...
Opec couldn't leave the oil market alone to progress at a steady rate. Iran and Venezuela couldn't wait to exploit the week dollar to meet it's ideological demands. Now the price of oil is going to seriously jeopardize economies in both of those two states. Hugo Chavez has been keeping his mouth shut or face a revolution in his own country. Iran is in trouble with economy that may cause a shift in it's politics. All opec countries and countries who have unofficially peg their oil price to OPEC will have to make serious adjustments to their economy to survive this near depression. The greedy have fallen on hard times. Sorry, there are no tears for them, here!
11-14-2008 @ 5:10AM
JCH said...
First, it's not clear at all that oil was a bubble. It's clear that housing was. Oil went up because of emerging market growth and existent market growth. If that ever returns, haha, then oil is going to be back to 130 to 150 before the second sunrise on the new recovery.
At 55 you can hear the rigs folding up. That means supply, which was not in good shape at 147, will continue to rot - even if global demand shrinks. A recovery means global demand will quickly go up, and that means 150 to 200 in no time.
Oh, and Chavez is loud as heck. Venezuela is a democracy. The people of Venezuela are not stupid. If they were to vote him out for a right winger, they know they would get far less, and the Americans would get a better slice. They would lose twice. If America wants back into Venezuela, they need to admit the people of Venezuela have a right to the form of government they want, and if that is socialism then we should accept their choice and shut our foul mouths. Chevron accepted Chavez's terms, which are the terms of the people of Venezuela, and they are in a position to be a major player in the Saudi Arabia of the future. Smart guys, those guys at Chevron.