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There's nothing like a supply cut and geopolitical tension to put a floor under oil's price. Oil popped above $50 a barrel Tuesday after Kuwait and Qatar indicated they will implement supply cuts announced last month, and Russia shutoff gas shipments to Europe stemming from its natural gas dispute with Ukraine.
Oil rose $1.66 to $50.47 per barrel. Natural gas rose 10 cents to $6.18 per million BTUs. The price of oil has risen about $12 in two weeks.
Economist Richard Felson said Tuesday geopolitical tension has re-entered the oil price equation. "Demand is so weak, prices should not be rising. And had they occurred alone, neither the Russian natural gas dispute nor Middle East tension would be enough to increase prices either," Felson said. "But the geopolitical tension combined with OPEC's production cut has been enough to attract oil buyers back to the market."
Another factor that's bullish for oil: the U.S. Department of Energy has announced that it will resume buying oil for the Strategic Petroleum Reserve. The U.S. DOE plans to buy 12 million barrels to replace oil sold from the reserve after Hurricane Katrina in 2005.
Felson said investors and business executives should not become alarmed just yet about oil's price, as the rally may prove to be Pyrrhic. "There's still a lot of oil sloshing around out there, and inventories are above 3-year highs, so the price could collapse again if the U.S. and global recoveries don't start soon," Felson.
Oil Analysis: Place the Russian natural gas spat and Middle East tension incidents in the category of 'short-term factors' affecting oil's price: oil will likely recede when these issues are resolved. A more-telling predictor of oil's price direction: U.S. oil demand. Currently, due to the U.S. recession, it shows little sign of revival, which is bearish for oil.
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Reader Comments (Page 1 of 1)
1-06-2009 @ 10:43AM
EMIL J KOVACH JR said...
The Truth Is:
"Another factor that's bullish for oil: the U.S. Department of Energy has announced that it will resume buying oil for the Strategic Petroleum Reserve. The U.S. DOE plans to buy 12 million barrels to replace oil sold from the reserve after Hurricane Katrina in 2005."
This Is The Price Rise--Factor--And Gets Turned Off--Like A Light Switch--It Is Not a Permanent Demand Factor.
EMIL J KOVACH JR
1-06-2009 @ 11:10AM
daang7601 said...
Vehemently and FURIOUSLY increase the CUT in your fuel usage, that's the way to force and sink oil-price, bankrupt the oil-companies and STARVE OPEC and KILL the Wall Streeters... Keep CUTTING!!! Our Cutting VS their cutting.... Fight fire with fire... Whenever they cut production, we CUT our usage even greater, that's the way to force and sink oil-price, bankrupt the oil-companies, STARVE OPEC and KILL the Wall Streeters...
1-06-2009 @ 11:56AM
Grumpy said...
What, it's 2009 and no Nigerian terrorists, diminishing supplies, OPEC, China, India et al have surfaced yet, only a simmering dispute about gas and us filling back up the reserve? Pitiful, you guys will have to do better than that!
1-06-2009 @ 12:31PM
Iridium said...
Oil traders don't care about the economy. These are people who don't care about paying $5 for a gallon of gas becuase they have the money to. $5 a gallon to pay for billions made in influencing the price of oil, what do you think they will pick.
We need to drag the traders out on the street. It's gone way past letting the market work itself out. The market is so corrupt that there is no going back.
The biggest problem with the makret today is that the people who control the market do not have to worry about paying for anything. Sure they may lose a billion dollars here and there but they still have billions in reserves. They live in a fantasy world so disconnected from reality that they can't even fathom what it is like to live in the real world.