Posted on 09/19/2006 6:09:31 AM PDT by Dubya
WASHINGTON - The recent sharp drop in the global price of crude oil could mark the start of a huge sell-off that returns gasoline prices to lows not seen since the late 1990s -- perhaps as low as 1999's $1.15 a gallon.
"All the hurricane flags are flying" in oil markets, said Philip Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Now they appear to be poised for a dramatic plunge, he tells McClatchy Newspapers.
Crude-oil prices have fallen about $14, or roughly 17 percent, from their July 14 record high close of $78.03 a barrel. Contracts for October delivery of oil settled Monday at $63.80, up 47 cents, on the New York Mercantile Exchange. Oil prices are expected to keep falling in the weeks and months ahead, just as natural gas prices have over the past year. Here's why.
For two years, oil prices rose because the world's oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil-production capacity grew so tight that market players feared that any production disruption could create shortages. Fear of disruption focused on fighting in Nigeria, tensions over Iran's nuclear program, the Israel-Lebanon conflict that might engulf oil-producing neighbors, and the prospect of more hurricane destruction in the Gulf of Mexico.
Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Financial players, such as large pension and commodities funds, are the big traders, and they're seeking profits. They've sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise bid up the price.
That led users of oil to create stockpiles as cushions against supply disruptions and higher prices. Now inventories of oil are approaching bloated 1990 levels.
With fear of supply disruptions ebbing, oil prices began sliding. There's already anecdotal evidence of oil companies chartering tankers to store excess oil.
"If we continue to build inventories, and if we have a warm winter like we had last winter, you could see a large fall in the price of oil," said Gary Pokoik, who manages Hedge Ventures Energy in Los Angeles, an energy hedge fund.
Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily, Verleger said. That could mean gasoline prices as low as $1.15 per gallon.
It's already happened with natural gas, which suffered a price meltdown, tumbling from a post-hurricane high of $15.38 per 1,000 cubic feet to Monday's $4.94 price.
Hopefully, they did not lock in their winter supply earlier in the year. If they have not then you should be seeing some substantial price drops over the next few months.
I can almost guarantee it. There will probably be a month or two lag, but since they can not make a profit on the commodity price - price reductions are passed along to the consumer.
Several of the hedge funds (from a story this weekend) have lost every penny they made in this year's crude oil runup. As an old 2 oil trader pal of mine once said, "Pigs get fat. Hogs get slaughtered."
GREAT --- does that mean we're taking over the oil fields and denying the muzzies oil revenue they plow into terrorist activities?
Great News on the gasoline prices...makes me feel better about this headline in my local paper....
"ELECTRICITY RATES To SKYROCKET"
http://www.pjstar.com/stories/091606/REG_BAVN16V5.006.shtml
Are we all just being played, or is all of this just happening due to real market forces?
Cutting edge of hindsight....
Funny, that didn't stop Washington Gas from telling me that prices were going to be much higher this winter than last. Bastards.
Those are socialist goals, and socialist goals never work. If the solution isn't market driven, it won't happen.
I like .40 a gallon. That would be good.
They must have bought their winter supply contracts high.
I remember when gas went to a buck a gallon. Here they didn't have pumps that went over a buck a gallon, so what they figured out to do was set it at 50 cents a gallon and double whatever price you pumped out.
So, in essence, if you pumped out five bucks at 50 cents a gallon, you paid the cashier ten bucks.
If Soros guessed wrong on gas prices---he's losing bigtime.
However, no big deal. Soros has an endless pot of dirty money being laundered globally that he accesses at will.
Funny how it's Bush's fault when gas prices go up, as evidenced by his poll numbers at that time.
However when gas prices go up, that is the only reason Bush's poll numbers go up.
Just .40/gal in taxes would a relief.
Same here in Phoenix, Az.
It was 99 cents in 1996 and Mark Shields told the NewsHour people - "the reason Bill Klinton will be reelected is that gas is ounder a dollar which makes people feel good enough to return him to office." Watch the same things happen for Republicans as gas drops below $2.00 during October.
Following Bush's UN speech, bulk gasoline is down 5 cents on the day. That is a fairly large move.
Why isn't anybody catching on that
GAS IS GOING UP AGAIN.
It shot up to 2.35 from 2.19 yesterday alone.
I am curious as to why this is happening with all the prediction it would just keep falling.
But, according to KS Gasprices.com....is UP, not down.
Here in Central KS, the prices have started creeping back up again.
Hmmmm….. I don’t know. Check out this site. Seems things are cheaper in the east.
http://www.kansasgasprices.com/index.aspx
Saturday evening I was out and gas was $2.26, then last night the same station was down to $2.16.
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