Saturday, August 9, 2008

Oil Prices Turn Bearish, But Bulls May Yet Return - Aug 09 , 2008

NEW YORK: In less than a month crude oil, which some saw hitting $200 a barrel by year-end, has plunged $32 but a rebound could happen, for example, over the Iranian nuclear crisis, analysts say.

From a record-high $147.27 on July 11, the New York futures contract slid to about $115 on Friday, losing almost 22 per cent in the course of four weeks.

In its wake, most other commodity prices, which were driven higher by the oil market surge, have fallen from their peaks: an ounce of gold has dropped to 800 dollars from 1,000; farm commodity prices are between 25 and 40 per cent lower and gasoline prices have dropped about 6.0 per cent.

"Oil is at a tipping point. It is an exaggeration to cry that a bubble has burst. It is a break," said Ellis Eckland, an independent analyst based in Chicago who insisted the "oil market was not in a bubble."

For James Williams at WTRG Energy, the law of supply and demand reins. "The market is simple reflecting the fundamentals of supply and demand. Markets participants are considering the world slowdown, the deterioration in expectations for the growth worldwide," Williams said.The slowdown in economic growth has a significant impact on energy consumption, analysts say.

Case in point: US drivers, known as huge consumers of gasoline, drove a third less in May compared with a year ago. Motor fuel consumption fell more than 2.0 per cent.

This trend is expected to extend to the emerging market countries where the increasing weakening of fuel subsidies is going to force consumers to fill up their tanks less.

By contrast, petroleum inventories which had slumped early in the year, are rebuilding. The world's largest energy consumer, the United States, has witnessed an increase in its crude oil reserves in recent weeks.

"When investors realised how much demand was increasing, they bid up prices. and when they realised how much inflation was increasing ... they bid up prices further," said Daniel Katenberg, an analyst at Oppenheimer.

"Now growth rates are declining throughout the world, the market overreacts to that, too," he said.

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