Following Oil's Descent: Half-way There
O and G readers will recall that on July 17 -- with oil at $133 a barrel -- this site predicted that crude prices were on a descent that would end below $100.
We are now about half-way there. Today oil dropped below $116 a barrel.
Why is this the case? First, as stated previously, there is no global shortage of oil itself. There is plenty to meet current demand. The problem has always been the "what if" crowd -- as in, What if there is another Katrina? What if there is war with Iran, and the Strait of Hormuz gets shut down?
These are reasonable fears. But traders are looking at a deep drop in consumer demand for gasoline, at a decline in China's industrial demand for oil, and a hike in the value of the dollar, and deciding both to bet on lower oil, and otherwise to take their speculative bets elsewhere.
In short: the air is going out of the commodity bubble.
We are now about half-way there. Today oil dropped below $116 a barrel.
Why is this the case? First, as stated previously, there is no global shortage of oil itself. There is plenty to meet current demand. The problem has always been the "what if" crowd -- as in, What if there is another Katrina? What if there is war with Iran, and the Strait of Hormuz gets shut down?
These are reasonable fears. But traders are looking at a deep drop in consumer demand for gasoline, at a decline in China's industrial demand for oil, and a hike in the value of the dollar, and deciding both to bet on lower oil, and otherwise to take their speculative bets elsewhere.
In short: the air is going out of the commodity bubble.
Labels: bubble, oil prices, russia oil, speculation
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