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There once was a time when the oil bulls had the upper hand: word of a refinery outage in Louisiana or unrest in Nigeria would send oil rocketing $3, sometimes $5 higher in a morning session.Then the financial crisis occurred, the U.S. and global economies fell into recessions, sapping oil demand, and now the oil bears have the hammer: oil rallies are corrective at best, Pyrrhic at worst.
Case in point: oil's most recent rally from the mid-$30 range about two weeks ago to above $50 in early January: a sizable percentage move, but ultimately fleeting - - oil fell $1.88 to $35.26 per barrel Thursday at mid-day after OPEC again cut its 2009 forecast for global oil demand.
In its January report, OPEC said it now expects the OPEC production component of 2009 global oil demand to fall 1.4 million barrels per day (bpd) to 29.5 million bpd.( pdf)
Further OPEC, also sees a "major contraction" in Organization for Economic Cooperation and Development (OECD) demand in 2009, including a 1.1 million bpd decline in U.S. oil consumption.
Economist Richard Felson said OPEC's January report provides further evidence of a global economy in recession.
"The global economy has slowed so much that demand continues to decline at a pace that's outstripping OPEC's ability to take supply off the market with production cuts, which is leading to further price declines," Felson said. "Oil prices will remain under pressure despite Saudi Arabia's recent decision to produce less than its quota." Many OPEC member states are hoping the cartel's cuts will boost prices back above $50 per barrel sometime in 2009.
Global oil demand fell in 2008 for the first time since 1983. Could the world see back-to-back yearly declines in oil consumption? "Before the U.S. recession any one would have suggested a 2-year demand decline would have been the target of jokes in research circles," Felson said. "But it's now possible, especially if we don't see signs of a U.S. economic recovery in the second quarter of 2009." Telling stats, to-date, in Felson's view: a 4% year-over-year decline in U.S. gasoline consumption, and rising oil inventories in the U.S.
Oil Analysis / Economic Analysis: Provided oil closes below $35 on Thursday, the next key support for oil is, of course, $30 per barrel. Oil last traded below $30 per barrel in 2004.
To measure how far oil has fallen, if oil drops below $30 it would need to essentially quintuple to return to its record high of $147.27 per barrel set in 2008.
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Reader Comments (Page 1 of 1)
1-15-2009 @ 4:27PM
BHarrison said...
Well, we Americans will need to buy oil at $20.00 a barrel for about a decade to make up for how badly they reipped us off during the last eight years. So the oil companies have gone from having made the largest exorbitant profits in their history to having to be competitive. Hmmmm . . . theiy should have more than enough profits from the past to carry them through it all.
1-16-2009 @ 1:38PM
George said...
"To measure how far oil has fallen, if oil drops below $30 it would need to essentially quintuple to return to its record high of $147.27 per barrel set in 2008."
Some speculators such as T. Boone Pickens think it will happen by the end of next year. But people who talk up the oil prices or talk up or down the stock market in CNBC, CNN, etc. are not doing it through economic analysis..they just have vested interest, including T. Boone Pickens and that Dean of $200 a barrell oil, Arjun Murty of Goldman Sachs...he has been hiding since July. Why do I get a strange feeling that Nouriel Roubini, Ken Rogoff, Gary Shilling who think the Dow will go down to 5000, along with others who think the Dow will go to 12,000 this year would be hiding from the media come December of this year?
1-16-2009 @ 8:36AM
Art said...
If we think back when this oil gouge started on its upward trend when Oil was at 36 a barrel we were paying $0.76 cents a gallon for gas. We are now back down to 35 a barrel but yet we are still paying $1.50 to $2.09 here in michigan for gas. The American oil companies are the ones that need there house cleaned out, they are gouging us to no end and making record profits, but yet there has not been a new refinery built in 35 years??? wake up people
1-16-2009 @ 9:17AM
szerno said...
I believe oil is under $ 35.00 /b on aol site is $ 42.00/b ?!!!!! Interesting ..
3-11-2009 @ 3:15AM
Alan Reuter said...
You're right about CNBC, CNN etc talking up or down the markets. It was pathetic today watching Maria Bartiromo and her colleague on CNBC's "Closing Bell" pumping up today's 6% rally. Trashy viewer testimonies like "I've never seen so many shoppers with more bags than they can carry. It's amazing!". This (after a terrible bear rally for over 2 weeks) just before the close, in a sly attempt to give the Dow a healthy leg up. Deceptive, sleazy market manipulation by crooks with a vested interest! :)