| 4 Ways to Ride Oil's Ups and Downs |
| Tuesday, June 16, 2009 |
By David Fessler
When crude oil prices spiked to $147 a barrel, there was no question that speculation played a significant role in getting it there. But speculation also played a role in getting it to $38 a barrel, too.
In the end, for oil and just about everything else, it all comes down to supply and demand. We’re in a recession, and demand continues to slacken. OPEC’s response has been to cut supply, with the thought that - everything else being equal - prices would eventually stabilize at some level.
But everything else isn’t equal: The Federal government has been dumping cash into the financial system at unprecedented levels. It’s caused the dollar to drop in value with respect to other world currencies and with respect to gold.
Since oil on all the world markets is priced in dollars, its price rises as the value of the dollar declines. It’s one of the reasons many oil-producing countries have suggested that the price of oil be tied to a basket of currencies instead of just to the dollar.
Unfortunately, there aren’t any other currencies that are as abundant or - more importantly - strong enough to handle the sheer volume of the transactions that occur daily in the oil market.
So we have demand and supply destruction in a race downward here in the United States that’s kept oil inventories high - up until a few weeks ago. Add to that steadily rising demand coming from emerging markets around the world. Throw a declining dollar into the mix and stir.
The result is rising oil prices - in all likelihood heading to $80 a barrel or possibly even higher by the end of the year.
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posted by citizen jerk @ 11:09 AM   |
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| 1 Comments: |
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Essential post. As rose in all flower. Keep writings. Thanks.
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Seed Newsvine
Essential post. As rose in all flower. Keep writings. Thanks.