Commodity Daily News

Against All Odds the Price of Crude Oil Continues its Decline

As Hurricane Ike inches closer to the Texan coast, oil refineries are getting shut down with blinding speed and civilians are clogging highways and draining gas stations in their attempt to flee the oncoming destruction. However, the most contradictory piece of data to emerge from this turmoil is the steady drop in the price of Crude Oil. When storms threaten major refineries, the historical impact has usually been to lower market supply and force prices to move upward as people, and nations, begin to stockpile in expectation of a shortage. As of right now, however, we are seeing the exact opposite of this outcome. Supply is being cut by suppliers and tropical storms, yet we continue to see the price of oil slip further and further reaching as low as $100.10 during yesterday's trading session.

How can this be? As no one explanation will suffice by itself, this slippage may be the result of three causes. The first is the lowering demand for pricey energy sources. As oil prices reached record highs this past July, demand for such an expensive source of energy sank. We are still feeling the effects of this slump in demand and prices are sinking to meet the appropriate level consumers are willing to pay. The second is the weakened global economy. As the value of currencies weakens during this time of global recession, it becomes harder to afford the previously expensive energy costs and countries are buying less as a result. Prices drop to meet that reality. The third cause is the impact of speculation. When the economy's bottom dropped out, commodities like gold and oil were bought up as a safety net. This drove prices higher and higher. Now, as the USD gets stronger and the economy attempts to correct itself, these commodities are dropping back to their normal market levels and speculators are selling off all their shares in these defensive commodities to escape their decreasing value, which of course forces prices to drop even further. Important for today's trading is for traders to be aware that the price of oil may resist the inclination for an increase in price given the recent news releases about supply. However, once market demand is corrected, supply will then continue to be a source of information about prices.