Oil plunges as the crude market seeks direction
In trading, there's a saying: the trend is your friend. Energy traders like to add: and no trend is nobody's friend. And "no trend" that certainly describes today's crude market. Oil bears deploy technically correct trades and are soon hammered by a market reversal. Oil bulls set longer term buy positions, only to see record-high oil inventories take center stage in mid-rally, stopping out their positions.
On Wednesday, the the bulls were hurt again, as oil plummeted $3.91 to $63.32 per barrel -- crude's biggest price drop in three months -- on a larger-than-expected increase in U.S. oil inventories, and amid concern the U.S. and global economic recoveries will not be strong enough to reduce those high distillate inventories.
The oil market is rudderless at this juncture, prepared to burst higher or plunge lower, depending on what each day's key fundamental implies for supply and demand. On Wednesday, it was U.S. stockpiles of crude oil, which increased 5.15 million barrels to 347.8 million barrels for the week ending July 24, the U.S. Energy Information Administration said. Analysts surveyed by Bloomberg News had expected inventories to decline by 1.5 million barrels.
But the oil bears are not thinking conquest and plunder. And how can they? In this market all it takes is one fundamental or data point in the other direction -- a report of increased GDP growth in China or better-than-expected U.S. factory orders, for example -- to trigger a market reversal, and stop-out many short positions. And a quick review of oil's chart shows just how volatile and chaotic oil has been recently: in eight months oil has plunged from $110 to $35, reversed to $73, dipped to $58, then jumped to $67 before today's sell off to $63. Try projecting energy costs in that type of market. And people wonder why airline executives' hair turns gray quickly.
Further, the analytical community has been of little help, with oil price forecasts varying greatly. Goldman Sachs sees a return to $85 and then $95 oil in 2010. Meanwhile, University of Calgary Economics Professor Philip Verleger says oil will collapse to $20 per barrel this year on a recession-based oil glut.
Given the unresolved nature of future global oil demand, all one can say about the direction of oil prices moving forward is what Mark Twain said about New England's weather: "If you don't like the weather in New England, wait awhile."
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Reader Comments (Page 1 of 4)
7-29-2009 @ 4:03PM
mark said...
Ohhh, I got it, that's why gas went up 25 cents per gallon yesterday....so it can go down a few cents on the news!!
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7-29-2009 @ 4:26PM
Brad said...
Gas didn't go up around here anywhere. Where in the heck are you, so I know not to trqavel there where gas stations will screw you?
7-29-2009 @ 4:28PM
Brandon said...
I find it interesting that Mr. Lazzaro doesn't mention the Obama Administration inquiry into speculation in the oil market. Seems to me this would be a good reason for big drops, Oil Speculators are fleeing before the gov't starts looking a little more closely as to exactly "WHO" is driving the market up as a speculator!
When speculators are out we will see these ridiculous swings in the market and the only way we'd hit $100 or $150 a barrel oil would be when supply and demand fundamentals were actually in play. Until now, little of crude's activitiy is due to actual supply and demand.
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7-30-2009 @ 6:49AM
reo said...
oil is going down because the oil companies were trying to make big bucks by buying oil that we were not using to keep the price up. they figured with a little drop we would chage and start running. well we didn't and now they are over stocked and no were to sell it. obama is taking this knowledge and using it to tell you he is doing something. hell the oil companies do not care what he does. we have to have oil and anything he chages them will go to us. they cn even sell off all the reserves at below cost and get rid of it and stick it to us for they unlike the dumb government have the cash money to do that that are richer and stronger then the government and will do him in if he mess with them and he knows it
7-30-2009 @ 8:06AM
Tim said...
Is anyone else getting tired of being screwed at the pumps everytime a fly farts? No matter what goes on in the world the oil executives find a reason to raise the cost of gas. Last week it jumped more than 20 cents a gallon in one day, lets see if it drops just as much with oil dropping almost 4 bucks a barrel.
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7-30-2009 @ 9:19PM
ron said...
OIL FUTURES RUINED THE U.S.ECONOMY
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7-29-2009 @ 5:18PM
garrett said...
It didn't help.
7-29-2009 @ 5:18PM
Chas said...
I 100% agree with you Ron.
8-06-2009 @ 10:47PM
GARY said...
ron is ABSOLUTELY right and the sooner everyone else gets it, the sooner they're going to have to do something about it. Without stability in oil prices, we may never get out of this mess we are in. Stabilize the market, heavy regulations if nessecery and consumer confidence and everything with it is restored, until then, this can go on forever!!!!!!!! Of course oil futures dystroyed the economy, not just here but globally, this depression was brought about by no other reason but!!!!!!!!!!!! Of course it openned up a pandoras box of economic disaster, mortgages, yada, yada yada.
something has to be done right away, the best way is to let em know we know the deal, enough already!!!!!!!!!
7-29-2009 @ 10:51PM
bailoutsos said...
How about two Bush wars that caused the panic in the oil markets.
7-29-2009 @ 11:56PM
doc said...
geez ron, haven't you been paying attention? while the high price of oil did play a marginal role in the economy tanking as it did, the REAL culprit was the housing market collapsing like the house of cards bill clinton turned it into when he decreed in 1998 that fannie mae shall loan money to any and all who apply for a loan, regardless of ability to repay...
all ti took was for the economy to cool off a little bit, a few layoffs, and here we are today.
7-30-2009 @ 6:47AM
BPADAMS said...
AMEN! TO THAT ONE
7-29-2009 @ 5:00PM
hemipwr54 said...
Gas price here jumped $.5 cents in 4 hours , I for one am voting for CHANGE in 2010 , and putting some new bodies in Congress , Change is what they wanted so I am going to give it to them .
Oh and plummet is from 70 to 40 , not just 3 dollars , such propaganda .
Everyone go out a buy a new car or house , government funded savings , funded by you and me , we are not saving but adding to our new higher tax rates , such a good deal , NOT !
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7-29-2009 @ 5:01PM
Billy said...
If oil is in abundance why in hell are we being triple didgeted at the pump. I say it's selfish greed.
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7-29-2009 @ 5:07PM
rbtltd said...
Just the oil business way of saying bend over now and wait for it. The question is not if but when.
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7-29-2009 @ 5:07PM
Ski said...
Gas has gone up here in Kansas by .15 cents a gallon in two weeks.
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7-29-2009 @ 7:16PM
rb said...
It's all the continued rip off of the American consumer by the big oil companies. The government won't do anything about it because all of the politicians are heavily invested in oil and reaping huge profits.
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7-29-2009 @ 5:42PM
Mark said...
Just my personal opinion,but I don't trust anyone with the title politician.How can I trust obama when he travels around the world apologizing for America?He's even got the Israeli's calling him racist.
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7-29-2009 @ 5:32PM
rick said...
whats funny these prices are for future months but when they up a in price a barrel gas jumps automatically 20to 25 cents a gallon but when it drops in price a barrel it takes at they don't drop 20 to 25 cents a gallon right then they gradually drop a penny or two here or there.
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7-29-2009 @ 5:47PM
wayne said...
BIG DEAL $3.50 a barrel that don't stop the them from trading gas at $2.00 a gal when the price is up they are the first to charge you but when it drops you don't see them droping the price at the pumps , wish we would go back to a blue laws on sunday and every one would stay home and stop feeding the machine then mabe they will get the hint that we are broke and they can't take any more from us
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