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Home Front Economy
Crude below $US50 could bring price collapse
2007-01-19
If crude oil prices extend their sharp slide below the $US50 a barrel mark it could trigger an even deeper wave of investor selling, energy analysts said on Wednesday. Oil prices have slumped about 16 per cent since the start of the year to below $US51 a barrel before picking up to around $US52.50 in after-hours trading and the market has a concentration of "put", or sell, options around the $US50 and $US45 a barrel level, making them key pivot points.
The spot price in Dubai sank to $US49.39 on Wednesday but in early trading last night was back over $US50 - by just one cent.
The spot price in Dubai sank to $US49.39 on Wednesday but in early trading last night was back over $US50 - by just one cent. "If the speculative funds were able to push crude below $US50 a barrel it could trigger a further wave of put short hedging which would give additional negative momentum," said Olivier Jakob at Petromatrix.

The drop in oil prices has been caused in part by an abnormally warm winter that has cut into demand for heating fuels and has rung alarm bells for OPEC members struggling to buoy prices with production cuts. But analysts have also been pointing to hedging by oil producers who wish to lock in revenue because they think oil's five-year rally may have run out of steam. "A $US50 WTI [West Texas Intermediate] price represents a level that could concern higher-cost producers and at that level we would expect to see further producer hedging that may not be easily absorbed by the hedge fund community," JP Morgan said in a research note.
Posted by:Fred

#15  A year or so ago I said that these huge prices hike would be only temporary, and they were.

Cartels such as OPEC only work for so long, then their power is overwhelmed by the actual market.

Read history and study oil prices as I did, and you will see that oil prices must be propped up on low supply or by articial ( meaning government ) means such as regulations that affect oil directly.

Low supply and high prices always mean new investment will seep into the oil market until such activity an no longer be sustained, such as when production increases.

Once the spigot is enlarged is it very hard to slow it down until supply, or interference in the market forces a change in investment due to falling prices.

The history of oil prices has always been deflationary. It is impossible to see high oil prices beign sustained for too long without some kind of intervention ( taxes or regulation)

Oil is finding its new permenant equilibrium and there will be a shakeout until that new level is reached.
Posted by: badanov   2007-01-19 18:39  

#14  I can't believe Big Oil let it drop so quickly. Perhaps they were in the MotherShip.
Posted by: Shipman   2007-01-19 18:09  

#13  Anon4021: *shrug* I just hope all the good outweighs the bad.

What will happen will happen. All I know is that everyone else doesn't worry about balance of good and bad of THEIR actions, doing what they damn well please, followed by demands that those with a better track record of success pay for their failures.
Posted by: Ptah   2007-01-19 15:17  

#12  I wonder if this is intentional or just a serendipitous change in the weather.

Aside from the West losing the incentive for domestic energy production, I see nothing but wins for us.

It essentially bankrupts Iran and Venezuela. I don't know how well Saudi and Kuwait, et al will hold up with the lower prices, but it seems like an additional economic pressure on the Iranian/Venezuela thugs. And by extension, robs North Korea of a rich ally.

*shrug* I just hope all the good outweighs the bad.
Posted by: Anon4021   2007-01-19 13:53  

#11  I've always thought that 5 bucks a gallon was not too high a price to see those barbarins go down for the count, but the then 25 cents a gallon would also be good:-))
Posted by: kelly   2007-01-19 13:36  

#10  W can make the case for higher taxes, tho I am lo to say it.

We can absorb this quite easily.
Posted by: anonymous2u   2007-01-19 11:20  

#9  Also, low prices make domestic sources and alternatives less attractive. The Saudis don't want us weaning ourselves.
Posted by: Rob Crawford   2007-01-19 10:11  

#8  1 - I hope someone is out there watching the system to insure all the speculators who drove the price up are not allowed to get out of their contracts. Though the cynic in me assumes that political and banking interests are going to protect their buds and contributors.

2 - The Sauds are intentionally doing this as a weapon against the Iranians. When the Iranian threat diminishes, you can count on the Sauds cutting back on production. Once again we'll pass up a window of opportunity [see its not just a Paleo affliction] to bring our own resources on line.
Posted by: Procopius2k   2007-01-19 09:57  

#7  Gives me a warm fuzzy.
Posted by: DarthVader   2007-01-19 09:50  

#6  I hope these investors all lose their asses!!! While we are struggling to make ends meet because of 2 to 3 buck a gallon gas, these wall street types were lighting their cigars with 100's. I hope they suffer.
Posted by: 49 Pan   2007-01-19 08:46  

#5  My "Mad Mullah" Brothers in Iran might have a couple of problems with oil under $50 also. Seems that little commodity is their 'line-of-credit', for which they are currently vastly overextended. Their 'creditors (Russia, China, Phrance, whomever else) might just want their 'pound of flesh' if the trend continues. Suddenly your 'futures' don't look so good on paper. The Iranian citizenry will subsequently suffer more.
Posted by: Mullah Richard   2007-01-19 08:35  

#4  I hope those bastards lose their shirts. Monkeying around with oil prices affects every single working class person in the country, but they don't give a rat's ass. They even go so far as to drive the price of heating oil and gas up to make a buck. And that's a real dog act in my book.
Posted by: bigjim-ky   2007-01-19 07:56  

#3   it could trigger a further wave of put short hedging which would give additional negative momentum

Translation: "We are SO screwed...."

Does anybody remember after the post-Katrina price hikes settled down how we were told $2.50 a gallon was forever and we'd better get used to it? In all honesty, I think this is going to only be a respite, but I intend to enjoy it.

Mike
Posted by: Mike Kozlowski   2007-01-19 07:13  

#2  That's tooooo baaaaaad.
Posted by: gromgoru   2007-01-19 06:50  

#1  Big oil does not allow price collapses.
Posted by: Sneaze Shaiting3550   2007-01-19 05:50  

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