The economy is crumbling beneath our feet - but at least we can travel on the cheap!
With the market still doubled over from economic gut punches this week and last, many of our readers feel like their 401K’s may not ever carry them to a sunny retirement in Florida. Well, with the way Crude Oil prices have been falling, maybe you can still travel there from time to time.
Crude-oil futures sank below $75 a barrel today on fresh signs that a recessionary economy will slow, and possibly reverse, world crude oil demand growth.
Light, sweet crude for November delivery settled $4.09, or 5.2%, lower at $74.54 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange closed down $3.97 at $70.56 a barrel. Brent settlement prices weren’t immediately available. For Nymex crude it was the first close below $75 since Aug. 31, 2007. Crude oil prices are down 22% this year!
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Don’t break out the party supplies just yet.
The price decline comes as analysts align demand forecasts with an increasingly dark economic outlook. The Organization of Petroleum Exporting Countries on Wednesday cut global demand estimates for 2008 and 2009, and said demand for its oil will fall sharply next year. Analysts at JPMorgan Chase & Co. now see oil demand contracting next year.
World oil demand last shrank in 1983. (Return of the Jedi in theatres, a year before Dell made it’s first PC)
The bank now sees oil prices averaging $74.75 a barrel next year, about $25 lower than its previous forecast, on the assumption the world is in recession. U.S. gasoline demand last week was down 9.7% from a year ago as the economy flags, according to a division of MasterCard Inc. “Add all these things together, and it paints a very bad picture for energy prices,” said Philip Gotthelf, president of Equidex Brokerage Group Inc. in Closter, N.J.
Hedge funds once speculating on energy prices have also had to pull out of commodities amid the credit crisis and demands for collateral, Gotthelf said. “This a monumental amount of money coming of the market,” he said. In response to oil’s steady fall, OPEC may curtail output at an emergency gathering Nov. 18. Iraq’s oil minister said Wednesday that the group should trim production at the meeting, becoming the latest official to suggest a cut is in the cards.
As it always seems to go with OPEC, they bent to political pressure to increase Crude Oil production after the economy had already slowed down. Had OPEC dramatically increased production early on, it could have had a mitigating effect on our current economic worries, thereby keeping crude oil prices relatively high, compared to where we will see them in 2009.
Now, the economy will slow, oil prices will fall and so will OPEC’s revenues. Demand never returns 100% to adjusted pre-slowdown levels. The country has already swallowed the man made climate change pill leading toward alternative fuels. That, combined with efficiency measures already taken will ultimately mean much less dependence on foreign oil. Now there is some bright news everyone can smile about!
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