What is happening in the oil market? First off, we've seen seen a high of $147.27 per barrel last July and a collapse to $32.40 per barrel on December 19 when the US economy was in shambles. Now oil has recovered to about $60.00 per barrel
Oil, of course, generally follows the growth in our economy As our economy picks up, so too does the demand for oil. The question at hand is: is our economy really growing? Paul Krugman, the Nobel Prize winning economist, says that the world economy faces 10 years of stagnation, mainly due rising unemployment in the US and Europe. David Fyfe, head of IEA's oil industry and markets divisions says: "there is oil overhanging the market." Japan's economy shrank at a record 15% pace last quarter. The European economy shrank at the fastest pace in 13 years.
Added to all this, OPEC produced 25.81 million barrels per day in April, an increase by 225,000 barrels per day from March. It is believed that as much as 130 million barrels are being stored offshore on 65 supertankers, each the size of New York's Chrysler Building.
So now in the face of all this information what would you do? That's right, sell. So traders jumped on July put options in force and drove the price down 18%. The number of contracts to sell oil at $50.00 per barrel for July delivery rose 22% last week to 24,948.
In light of the extra supply of oil, some analysts are looking at $40.00 per barrel oil as a more realistic price.
Do you believe that oil will drop to $40.00 per barrel?
Closing Bell: Dubai sends jitters throughout the market (S, BBY)
Heinz looking good after the second quarter?
Why isn't Bank of America updating its shareholders on CEO situation?
Reader Comments (Page 1 of 1)
5-27-2009 @ 5:54PM
Iridium said...
Uh, commodity traders put a price target of oil when they bought at $35 as their mass sell point. That was around $60. They hit the mark, drove it up for a few points more, and then started the mass selloff to secure a 100% profit return.
If they don't sell when everyone else sells they will lose out on all the profits they set to reap. At the same time the short sellers, who are set up in concert with the price drivers, enter into the market to profit on the way down. The short sellers then use the profits from the selloff to create the next profit drive. The previous market drivers then set up to become th eshort sellers on the next selloff.
This circular profit drive by a small group of connected traders is what drives the market. They never really trade thier own money but take the real profit. This ponzi scheme is the real market. Just like all ponzi schemes, it eventually has to blow up. It did last fall but the connected few got the world's governments to bail the scheme out so it could rev up again. We essentially were forced to fund the scheme even if we didn't want to play the game.
We will get massive runups and massive selloffs until the commodity market is regulated again. The oil market will parallel the main exchange as it is manipulated up and down to generate profit for all of those involved at the top of the pyramid scheme.
5-27-2009 @ 7:35PM
veyron3k3 said...
It should have dropped to $25 before it began going up again. It's a scam, and 30 years from now, this will be remembered as one of the Great Robberies of the American People.
I have to agree with Iridium, these markets need to be regulated. I've said it before here and i'll say it again:
Oil (commodities for that matter) is suppose to be a lagging indicator, not a forward indicator