Wednesday, January 10, 2007

Crude Oil Futures continue to drop

Crude oil futures dropped for the third day running. According to the FT:

ICE Brent for February delivery slipped $1.21 to $53.97 a barrel in late afternoon London trade, but off its intra-day low of $53.50, its lowest level since June 2005.

The pundits have been advancing all sorts of arguments why this is happening - the mild weather which has meant that less fuel is used, which has increased inventories; that business and individuals have become more fuel efficient, and are using less, etc etc. All of which are true as far as they go.

However, the fall in recent days happened even while the Russian-Belarus pipeline was shut. That indicates that the price drop is signalling something fundamental. Whenever you get a global slowdown, demand for oil drops (as less economic activity takes place) which always drags down the oil price. This drop in the price of crude is probably an early indicator that the world economy is slowing, even though a host of pundits are saying otherwise. We shall know for sure in a few months, when the data comes out.

OPEC can't be pleased - they want to keep oil at $55-$65 dollars and will cut output on Feb 1st. Not sure it will do them any good. If the global economy really is slowing, demand will fall faster than OPEC can cut supply.


Anonymous said...
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Jose said...

I wonder whether the drop in price is meant to damage Venezuela's Chavez's aims. I wouldn't be surprised if that were so.

Jose said...

I wonder whether this drop in prices has nothing to do with Iran and Venezuela's politics.

snowflake5 said...

jose, I don't think the drop in oil price is anything to do with Venezuela or the middle east. Quite simply the market is so large, it's beyond anyone's control. A drop in price can only mean a drop in demand.

Jose said...

Yes, I know that before Chavez and Iran the prices of oil were changed at whim, always using an excuse for those changes.

But I now see that both Iran and Venezuela are trying to shift oil quotations from Dollars to Euros, and that gave me the idea that the reduction in prices was motivated by this intention.

Of course with oil prices nothing is known. Sometimes lower demand also provoked higher prices. I'd give a million if I had it to attend unnoticed one of those meetings where prices are set.

I repeated my previous post because it took longer than it is usual in moderated blogs and I thought I hadn't sent the first one.