It's a classic case of the trend outpacing the cutbacks. Oil plunged more than 6% early Monday on concern the U.S. and global recessions will decrease demand faster than OPEC can cut supply.
Oil fell $2.57 to $38.26 per barrel -- its second dip below $40 in less than a month.
Energy Trader Jim Dietz said the long-term factors favor a continued move lower by the world's most important commodity.
"As I said earlier, we're definitely headed lower. The geopolitical problems in the Middle East and in Ukraine can't go on forever, and when they're resolved, oil will drop further," Dietz said. "The next minor support level is $35." Dietz added that he was currently short unleaded gasoline, with a monthly contract.
Over the weekend, Russia and Ukraine approved a natural gas monitoring deal that will result in the resumption of natural gas flows to Europe.
The other major energy commodities also declined early Monday. Heating oil fell 3 cents to $1.46 per gallon, unleaded gasoline decreased 3 cents to $1.07 cents per gallon, and natural gas dipped 3 cents to $5.49 per million BTUs.
Dietz said two demand factors will influence oil's direction over the next six months: GDP growth in China and U.S. gasoline demand. China's economy is growing about 7-8% and if it slumps further, oil's price will remain under pressure. U.S. gasoline demand has been registering year-over-year weekly declines for more than six months -- another bearish sign that would have to reverse to support oil's price.
Oil / Economic Analysis: Underscoring, those investor who are thinking about oil stocks / oil plays take note: oil inventories continue to rise, despite OPEC's cutbacks -- a reality that puts $30 per barrel in to view in 2009.
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Reader Comments (Page 1 of 1)
1-12-2009 @ 10:35AM
JCH said...
The effects of the cutbacks aren't really in play for at least several more weeks. If they overestimated demand, they'll cut again.
1-12-2009 @ 12:36PM
Sanbornbob said...
We the people can be the largest and strongest influence on policy in the US. We have done so by forcing the price of oil down by not driving. Prices too high "we don`t buy" that should be our motto. Let`s get rid of the auto union to lower the price of cars. By the way I think their quality stinks (the big 3). Lets stick it to them. Fix up the old and don`t buy the new- Lets show them "people power" by sticking together.
1-29-2009 @ 3:37PM
daang7601 said...
Tell OPEC to STOP supplying us any more of their BLOODY oil... That way these camels don't have to worry of cutting little by little.
America can survive without it; the Americans are innovative and are prepared and are ADAPTABLE without OPEC's oil... So, OPEC STOP sending us anymore of your bloody oil... I stopped buying gasoline and any crude products...
I got rid of all my gasoline fueled vehicles and tools... No longer need them...