Oil dips below $37 on bad US news

[Omaha Steve]

Source: AP

By GEORGE JAHN -

VIENNA, Austria (AP) — More bad economic news from the U.S. sent oil prices tumbling Wednesday, with a barrel of crude briefly fetching less than $37 in thin Christmas Eve trading.

Expectations of further buildups in U.S. stocks also kept a low ceiling on prices.

After dipping as low as $36.63, light, sweet crude for February delivery recovered slightly but was still down $1.87 at $37.11 a barrel by afternoon in Europe in electronic trading on the New York Mercantile Exchange. The contract fell 93 cents overnight to settle at $38.98.

A steady stream of dismal U.S. economic and corporate data during the past few months has hammered investor confidence and sent oil prices reeling 74 percent since July.

Read more: http://www.google.com/hostednews/ap/article/ALeqM5i5TtajgUpSm7KY5jf-lCJGHBB-tAD9594G3G0

[bluestateguy]

1. Where is the "drill baby drill" crowd?

All I hear are crickets.

[Hydra]

2. "But, but...the oil price reflected reality!"

Nevertheless, this worries me. Everything I'm hearing from the economy screams "dead."

[Ishoutandscream2]

3. I read (here on DU) that one analyst said that the only way

a gallon of gas could go down to a dollar a gallon again was for oil to plummet to 20 bucks a barrel. He said essentially that was almost an impossibility.

Of course, the so called "experts" were saying the era of cheap oil was over, and that 200 dollars a barrel of oil would hit us sooner than later. And now here we are...

[Dr.Phool]

5. Those same guys had a vested financial interest in seeing $200 oil.

A more astute DUer, I don't remember exactly who, said at the time, "I guarantee, that if we ever see $60 a barrel oil again, we'll have an economy in tatters".

Who was right?

[TheWraith]

7. True experts know that they don't know everything. nt

[caseymoz]

11. They didn't anticipate this degree of a downturn.

What happened was, the oil suppliers ramped up production capacity, just when the economy crashed.

Once I realized the degree of plunge in oil prices, I knew the economy was in real trouble. It indicated a huge decline in demand. Factories weren't going, and people weren't driving to work as much, because unfortunately, they were losing their jobs.

[Tab]

4. IMHO, the price of oil is not keyed to the demand level

although demand certainly has something to do with it.

It's really politically based. In times of political uncertainty, the price will skyrocket. Otherwise, it stays subdued.

Because of the political uncertainty brought about from the Iraq war, the price skyrocketed. Now that bushco is on its way out, and a more peaceful America is coming in, the price is going down and down and down. Chaos breeds fear, which breeds high gas prices.

Certainly there are some oil recovery options (like drawing from shale) that are not economically feasible at low prices, but overall I think the price of oil is an indicator of the worldwide political fearfulness.

Does anyone disagree? I mean that as an opening to an honest discussion of it, not so much a challenge. It's what I think. If you believe the price of oil is primarily driven by something else, I'd like to know what.

[Dr.Phool]

6. A post in yesterday's Stock Market Watch thread pointed out.

Back in June, Sen. Carl Levin stuck a provision into the Farm Bill that plugged the "Enron Loophole". Bush vetoed it, but it was overridden.

No more speculation. Prices came down.

[lib2DaBone]

8. Wow..that's interesting. Once again...Bush Hates America and the Media Sleeps....

[caseymoz]

12. I disagree-- oil prices fell because production had ramped up just when demand crashed.

I knew the economy was in deep trouble when oil plunged so suddenly. Because immediately I realized the economy was plunging. The high prices on oil led to increased production capacity, but then demand hit a wall. At first, it was more than likely the construction and manufacturing industries dropping. Then consumer demand dropped off, meaning that China, and other far-east companies were beginning to slow down. As the world economy has continued to deteriorate, demand for oil has continued to decline. China's economy is now slowing drastically. I actually expect it to decline. This is serious, because China might become very unstable. I'd hate to be in a country with 300 million unemployed and pissed off people.

I hate to say some of the decline now is due to the fact that more and more people aren't going to work daily. We might be unemployed and hungry, but on the bright side, the air is going to be cleaner than it has been since Reagan! And we might just drastically cut down on greenhouse gas emissions, too.

We can't have these kinds of declines in the labor market and in oil without deflation. For your whole life you have been hearing about avoiding inflation, but a deflationary economy is a horror story of its own. Prices declined during the Great Depression. That's the one thing that tells you if you're in a recession or a depression-- how much prices decline, all over. Yes, prices are low, but you can't make any money, either.

[Tab]

13. I'm not saying demand is totally unrelated, but it's not the only cause

Prices spiked to $4/gal. Did demand double or nearly triple? It spiked too high and too quickly to be a function of demand. Political uncertainty, on the other hand, may cause it to spike. Or if you do want to equate the two, political uncertainty might mean a stockpiling of reserves, so it's demand indirectly.

Some people were claiming a shortage or high demand on India and China now consuming more, but they certainly didn't just turn on everything overnight and start using oil. They'll ramp up like everyone else, over time, unless they decided to purchase huge reserves, but I never heard that mentioned (the reserves, I mean). If they did such a purchase that could have such an effect on world prices, you'd certainly hear about it - probably from the Republicans wondering what the huge purchase portends for America, but no peep was heard, which makes me discount India or China as the sole influence behind the price rise.

If you pay attention to the news (not to imply that you don't) and watch the price of oil in conjunction with news implying political uncertainty (anything from an election to a bombing to a war), I think you'll find that the price often goes up in accordance with it.

The huge drop, of course, is probably a result of (1) election, (2) lowering of demand as you noted, coupled with (3) crappy economy, but the unusual event is really how it go so sky-high to begin with.

[caseymoz]

15. A double or triple price spike does not equate to a doubling or tripling of demand.

Or a half or third drop in supply. There's no mathematical proportion to it; the supply/demand curves are descriptive, not mathematical, and some product prices are far more sensitive to changes in supply or demand. Oil would be very sensitive, because it is in everything, by being an ingredient in commodities themself, or, more generally, the fuel for its production and transportation to the market.

Therefore, a small, but general, drop in demand for products would mean a very steep drop in oil prices. This happens when consumers broadly restricted their spending and more so in the coming months as factories (including in China and India) shut down in response, and these events have continued now for months. The steep drop wouldn't have concerned me very much taken by itself, but given alarming events prior (the collapse in the housing market, widespread stoppage in finance, a squeezing of consumer credit) I was alert to it.

I believe from my observations that already high oil prices are much more sensitive to world turmoil (excuse the pun), but when they are low, they aren't so sensitive. Oil prices had their steepest decline two months before the election, though granted, it might have "tranquilized" demand since. The more tranquilizing effect might be that we probably lost close to three million jobs in the past month alone-- which would mean unemployment is now something much worse than ten percent. Now that is steep. You mention the drop in demand and the crappy economy: actually the crappy economy was causing the drop in demand-- so actually the decline in demand and the crappy economy are different sides of the same thing.

IMHO, we're heading for depression pretty damn quick. The good news is that I think oil prices will decline much more, probably well under $20 a barrel. The bad news is, people will have a hard time affording even that.

[entanglement]

14. There was also a large speculative component to the price - the peak occurred in July, three months

AFTER demand destruction data started pouring in from around the world. This speculation was also made easy by the immense leverage allowed in commodities trading.

[excess_3]

9. spot price of Wti crude, $32.35

http://www.bloomberg.com/markets/commodities/energyprices.html

[Endangered Specie]

10. Oh well, I'll take the $1.50 gas...

consolation prize for having $700 billion taxpayer dollars go to the scammers who caused the mess.

[Psephos]

16. Here's another consolation prize...

...$1 trillion dollars that will not be sent next year to oil producing countries, but instead stay home and stimulate the economy. The effect of that direct saving will dwarf the effect of anything coming out of Washington.