Almost nobody got the peak in oil prices right in July.
Looks like it’s the same story on the way down.
Near-term crude futures crashed through $40 a barrel today, falling $3.84 to end at $36.22, the lowest since 2004.
Oil bulls, the Organization of the Petroleum Exporting Countries among them, thought $40 would hold. It did two weeks ago, when crude slid to $40.81 on Dec. 5, only to rebound to nearly $48 four trading sessions later.
This time, despite OPEC’s pledge Wednesday to cut another 2.2 million barrels of daily production, or 8% of the cartel's output, the oil market’s bears showed they’re still in control.
The selling today is partly a function of the expiration Friday of the January oil futures contract. Because of excess supply in the market, oil for current delivery is selling significantly below oil to be delivered in a month or more.
But Peter Beutel, head of energy consulting firm Cameron Hanover in New Canaan, Conn., thinks OPEC unwittingly struck another blow to market psychology Wednesday by emphasizing, at the top of its communique, that the supply cut was 4.2 million barrels.
Whoops -- they meant that was a cumulative 4.2 million, including 2 million barrels already offline since September.
Buyers initially came in on the 4.2-million number, then quickly fled when they realized the new cut was 2.2 million barrels, Beutel said. Oil ended down $3.54 a barrel Wednesday, setting the scene for more selling today.
Maybe we should consider this OPEC’s holiday gift: More relief at the gas pump.
Stephen Schork, head of energy research firm Schork Group in Villanova, Pa., thinks prices could fall to the mid-$20s by early next year, as demand continues to decline amid the global economy's slump.
What's more, he says, too many investors have been betting that $40 would mark the bottom, which means there’s room for psychology to get much more negative now that $40 is history.
"Markets trade on psychology as much as on fundamentals," he said. "No one believed that OPEC had control when prices were going up, and now no one believes they have control on the way down." That begets more selling and keeps potential buyers sidelined, he said.
Beutel said the final low price, whatever it turns out to be, may shock everyone, much the same as the peak of $145 a barrel in July was a shocker.
"Things that go up too much, come down too much," he said.
-- Tom Petruno
Photo: Better to wait to fill up? Prices at a Massachusetts gas station today. Credit: Elise Amendola / Associated Press
http://www.typepad.com/t/trackback/816965/37251518
At 36 dollars per barrel, Exxon Mobil will still bring in at least a billion dollars profit this upcoming quarter. So, no mercy to them. Bring on the holiday cheer. IT'S ON!
Posted by: The word of reason | December 18, 2008 at 04:31 PM
We seriously need to get on with the business of becoming energy independent. While we are doing the happy dance around the pumps with the lower prices OPEC is planning yet more production cuts and will not quit until they achieve their desired price per barrel. The record high prices this past year have done serious damage to our economy and society. It would cost the equivalent of 60 cents per gallon to charge and drive an eelctric car. If all gasoline cars, trucks, and suv's instead had plug-in electric drivetrains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota.WE must move forward with energy independence. We have the knowledge, we have the technology, what America lacks is a plan. Jeff Wilson has a new book out that is beyond awesome. The Manhattan Project of 2009 Energy Independence NOW. He walks you through every aspect of oil, what it is used for besides gas, our depletion of it. The worlds increased need ie 3rd world countries becoming more modernized and consuming more. He explains EVERY alternative energy source and what role they can play to replace oil. His research is backed up with hard data and even includes a time frame and proposed legislative agendas to wean America off oil. www.themanhattanprojectof2009.com
He also has a VERY interesting article posted on the Better Place Blog called How Much Electricity Would It Take To Replace Gasoline you can read it at...http://planet.betterplace.com/profiles/blogs/how-much-electricity-does-it
Posted by: Tay | December 18, 2008 at 04:36 PM
Good news for once ,we are the scewer rather then the screwee. If is time develop alternatives asap and say good bye to the middle east..
Posted by: Steve | December 18, 2008 at 04:50 PM
Great news, but gas prices are going up again, two increases in two days, is it holiday travel gouging or what?
Posted by: jim | December 18, 2008 at 07:42 PM
Now that gasoline prices are down, let's finance a Manhattan Project type effort for an alternative with a $2/gal tax.
Posted by: martscan | December 19, 2008 at 05:14 AM
Martscan, are you nuts? $2/gallon tax? Yes, let's add more taxes to everyone when the economy is so bad. At a +$2/gallon tax, you can say good bye to anything being a semi-reasonable price (i.e. food, clothing, anything that relies on transportation) - thus leading to an increased homeless population and a generation of malnourished families. Oh yes, +$2/gallon tax sounds oh so wonderful.
In reality, people may now just be able to survive the economic crunch because they are not having to put 40% of their paycheck into their gas tank (ok, that was a random number, but the concept holds true - people can afford more when less is being spent to fill their transportation). Leave the taxes alone. People don't need more taxes squeezing them to death.
Posted by: Nick | December 19, 2008 at 11:20 AM
How is oil below $40 a good thing? That means our economy is falling apart faster. People, realize that oil at the current price means our economy is broke. You can thank all the bailouts and the Fed. What a bunch of fools. How can anyone have any confidence in this monetary system full of crooks and manipulators. Gold is looking great.
Posted by: Jim | December 19, 2008 at 11:54 AM
Nick: Am I nuts? Perhaps, my former wife certainly thinks so. But when it comes to our dependency on oil, and the cyclic tread mill of price peaks and troughs with its disruptive effects on our economic lives, not to mention our health and the environment, I don't think so. The whole public discussion of "oil"; offshore drilling, oil company profits, gasoline and diesel prices, fossil fuels, boogie man OPEC, etc...has a certain parallel to the costs of the Iraq war...everyone is against the costs, but no one is willing to sacrifice one dime to reduce the deficit or finance solutions to oil dependence.
Yes, there is hoarding, speculation and manipulation in any market or commodity that is traded in auction fashion, but the basis for all price determination is supply and demand, as we are so vividly witnessing now with current oil prices. If aggregate demand for oil was suppressed intentionally, beyond the effects of a recession, who is to say the price wouldn't drop below $1.00.gal? At that price level a $2.00/gal tax, while onerous to our natural aversion to taxes, would hardly cause the increase in homelessness to which you refer..an unlikely hyperbolic result in any event. As to under nourished families, we have them regardless of the price of gas...join me in voting for increased social services and welfare. While that is another subject, surely the wealthiest country in the world should be expected to care for those of its population who are hungry and ill, wouldn't you agree?
Denmark, with gas prices of $10/gal, has a higher standard of living than the U.S. Why is that? And though 25 years ago they relied on the Mideast for over 90% of their energy needs, today their reliance on the Mideast is 0%. They did it with increased taxes which forced them to develop alternatives...and in the process create new industries, capital formation, jobs and an economy devoid of the perceived whims of OPEC. Denmark produces over 20% of their energy by wind power, the U.S. less than 1%...they recycle heat from coal powered plants to heat homes, they have stiff efficacy standards on building products and appliances, they incinerate trash and recycle that heat into power, over 50% of urban transit is by bike. In short, they punish expensive energy and waste and reward conservation and inexpensive energy. And they do it primarily with taxes...and it works.
Posted by: martscan | December 19, 2008 at 03:30 PM