Oil prices continue south: drop below US$70

17-Oct-08

Oil prices have plunged to less than half of the record high prices peaked in July, closing at 14 month lows. Light, sweet crude for November delivery settled 6% lower at US$69.85 a barrel on the New York Mercantile Exchange, the lowest settlement prices since August 23, 2007. Crude stocks rose by 5.6 mln barrels last week, well above the 3.1 mln barrel increase expected by analysts, as per data released in a government report, dragging oil prices below US$70 a barrel. Gasoline stock rose by 7 million barrels last week, more than double the build analysts had expected. The market spirit failed to get stimulated despite advancement by a month of an OPEC meeting. In this meeting to be held on October 24, OPEC will discuss oil's rapid drop in value by over 50% since July 11, and whether or not a production cut is needed. The meeting signals that OPEC is concerned about the speed with which oil prices are slipping away from a preferred price of around $80 a barrel. Oil price has collapsed from record highs of US$147 in early July, as the combination of the rising dollar, turmoil in the financial markets and slowing demand took their. Until July, oil prices kept rising because people obeyed the herd instinct and kept buying. We are currently on a similar trajectory, but downwards. The decline in oil prices could provide a form of stimulus to the global economy as consumers pay less to fill up their tanks. If oil prices stay at current levels, American consumers would have $250 billion more, over a year, to save or spend elsewhere, according to Lawrence Goldstein. Some analysts expect oil prices to keep declining, perhaps to as low as $50 a barrel in coming months. Energy bills in USA will also be lower than last year, as gasoline and heating oil futures also dropped sharply. Last week, the International Energy Authority revised its predictions for 2008 downwards by 240,000 barrels per day (bpd), and for next year by 440,000 bpd compared with the previous month's report.