Oil moved up above $70 early in the session, but was unable to hold that momentum through the day. After its strong start to the day, prices dropped $2.19 to $67.83.A major reason for the drop in prices can be attributed to the World Bank. The World Bank slashed its forecast for this year's global economic growth, and reported that the current recession is deepening.
In March the World Bank had forecast that the global economy would shrink by 1.7% this year. The new forecast calls for the global economy to actually shrink by a much greater 2.9% this year.
Of course, oil prices rely heavily on the overall economy. Without a strong economy, demand for the precious crude will remain weak. A big reason for oil's recent price run up has been increased optimism towards the current recession. Traders have been placing big bets that the economy is going to turn itself around this year, and should this turn out to not be the case, oil will have a lot more days like today.
Another big cloud hanging over current oil prices is the situation that is currently unfolding in Iran. Iran is the world's fourth largest oil producer, and OPEC's second largest oil exporter. The current political unrest following the nation's recent elections could really spark a fuse in the country. Should things really escalate in Iran, prices could be heading sharply higher. The Iranian government has been doing its best not to let images and news out of the country, but the information is making its way out, and it is not pretty. Violence has been ongoing for the past week, and it has not been letting up any today. The government did announce that they had found some errors in the voting, but this has done little to calm the tension within the country.
The fact that oil prices are lower, despite the situation in Iran, is a clear indicator of just how seriously traders are taking the recession news. Typically any sort of unrest in the middle East, in particular Iran, is enough to create a spike in oil prices.
For now traders are focusing on revised growth numbers, but it remains to be seen how long the situation in Iran can continue before oil prices start reacting as we would expect.
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Reader Comments (Page 1 of 1)
6-22-2009 @ 6:59PM
ben said...
LOL it take the World Bank to tell you guys that we are no where close to recovery?
6-22-2009 @ 10:41PM
dang1067 said...
This is the result of "LURE & PREY" in the oil trade market, (AKA: HUSTLERS in Wall Street)... The small fishes was LURED to placing large bets on the table based on COOKED-UP Speculations to create buying-paper-oil stock frenzy...
Then the big-fish turns around with another COOKED-UP speculation "on economic concerns" then, BOOOM!!!! The big-fishes keeps all their winnings, and the small fish looses everything.... This types of role-playing schemes by the Big-Fishes proves to work all the time resulting with ocean load profits, thus repeating the proven scheme-method over and over is deem necessary....
6-23-2009 @ 4:15AM
STEVE said...
A fool and thier money are soon parted. In the case of the price of oil in the commodities market. Our money is soon parted due to the greed of the traders that drove the price over $70 when itr should be mid 40s. Our recession will continue to linger until someone has the nads to disconnect the oil market from the stock market. The world needs to wean itself from oil soon before its to late.