Business | Oil & Gas
Crude prices are likely to fall further
Crude oil in the New York Mercantile Exchange has now lost 20 per cent since reaching $147.27 a barrel three weeks ago. On Friday the benchmark West Texas Intermediate settled the week at $115.20, down $4.82 just on that day.
- By Dalton Garis, Special to Gulf News
- Published: 00:02 August 10, 2008
Dubai: Crude oil in the New York Mercantile Exchange has now lost 20 per cent since reaching $147.27 a barrel three weeks ago. On Friday the benchmark West Texas Intermediate settled the week at $115.20, down $4.82 just on that day.
A pipeline fire in Turkey, more difficulty in the Niger Delta and an unsatisfactory answer from Iran regarding its nuclear programme have failed to push up crude prices either significantly or for any length of time.
The falling trend, amid news that just one month ago would have sent crude prices soaring, is evidence that markets are now biased towards lower prices. Now any bearish news sends prices down but bullish news fails to push prices up.
Some of the reasons for last week's slide can be traced to technical chart trading, which owes its predictive power to its internally consistent resolutions to subscribers. Ignore its results at your peril, since they are carefully followed by markets. The rest of the price fall is likely explained by a significant increase in the dollar's value against other currencies, especially the euro and the Japanese yen.
Expect Opec to pronounce that the latest price decline proves that "mere speculation" was responsible for recent records.
Yes, and no: When prices are continually rising it is necessary to buy now and not wait, since waiting will only add to the purchase price. Conversely, it is just as necessary to sell today and not wait when prices are falling since waiting means earning less in the sale. All this is not speculation but just rational behaviour and common sense. The difficulty is that all others are trying to achieve the same goals, and so by their very actions the price move is accelerated and extended.
WTI for September 2010 closed the week at $114.05, a $10 loss from last week's $124.36.
Two weeks ago it stood at $130.17. Last year crude sold for $71.47, down from $75.39, 53 weeks ago.
In the local market the benchmark Dubai Mercantile Exchange's Oman heavy sour closed out trading for the week at $113.50, down from last week's $126.69.
All the back months were either more expensive or about the same, indicating a general consensus that crude headed for Asia will continue to experience strong demand, regardless of what may happen in North American markets.
Natural gas lower
The New York Mercantile Exchange's natural gas benchmark closed the week at $8.24 per million btu, down from last week's $9.08.
North American markets are beginning to register the significant increase in exploration and development in US natural gas fields with recent large finds making the news. Even so, $8.24 is within the high side of a seasonally adjusted price range. Last year at this time it sold for $6.63.
In fact even lower price brackets could be expected, all else being equal.
With falling crude prices comes falling gasoline prices in the US, at least $0.30 a gallon so far. But don't expect Americans to start driving as they used to. Having finally being forced to cut back on driving to save money, Americans are finding that the adjustment was not that hard after all, and has left more money for food and other expenses.
Also, the driving season will end with the beginning of school in three weeks, limiting discretionary driving in any case.
- The writer is an associate professor of Economics and Petroleum Market Research at the Petroleum Institute, Abu Dhabi.
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