Mixed economic signs push oil prices lower

Posted Jun 17th 2009 10:30AM by Mark Fightmaster
Filed under: Commodities, Oil, DJIA

Oil prices have dropped a bit this morning, challenging support at the $70 level, due mainly to what some call "mixed signals" about the U.S. economy. The black gold has backed off as data pointed to the fact that the U.S. economy is still weak, even if it is emerging from the recession.

On Tuesday, the Federal Reserve announced that industrial production dropped more than expected during May, which has triggered the new weakness in the oil patch. Crude prices have also felt the sting of the market's early week weakness as the Dow Jones Industrial Average has backed off from its recent rally. In addition, the dollar has played an important part in crude prices. A weak dollar leads to higher oil prices as commodities are considered a safe-haven investment against a weak dollar.

Toby Hassall, analyst at Commodity Warrants Australia, told the AP: "There have been some mixed signs. The last few days we've seen a turn toward negative sentiment. Oil looks set for a correction." Hassall believes oil "will likely drift below $70 and maybe to $65. It's been a very strong rally, driven by sentiment rather than data, which makes it look vulnerable to a correction."

Speaking of data, we are in store for our weekly round of crude inventory data. Platts expects crude reserves to drop by 1.7 million barrels during the past week, gas inventories to fall by 650,000, distillates to increase by 950,000, and refinery capacity to increase slightly.

Tags: crude oil, CrudeOil, Dow Jones, DowJones, economic crisis, EconomicCrisis, inthenews, oil inventories, oil prices, OilInventories, OilPrices

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Reader Comments (Page 1 of 1)

6-17-2009 @ 2:38PM

Walter Kurtz said...

Oil prices are not going back to the levels of last summer. The prices are capped. The financial crisis has created permanent destruction of demand growth. The expectation now is 1% growth in demand per year. Two contributors to this are:

1. Faster gasification in Asia (as Asian nations begin to use liquefied natural gas)
2. Greater auto efficiency in the US. Sensitivity to high gas prices is extreme, given all the pain the US consumers have experienced. Fuel efficiency is here to stay.

Given that the demand by 2015 is expected to be 90 million barrels per day (MBD), this new need for oil can be easily met by cheaper forms of production, in effect capping the price.

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