Thread: Oil Tumbles as Signs of Slowing Economy Spur Commodity Selling

Oil Falls to 6-Week Low as Storm May Miss Fields, Dollar Rises
By Mark Shenk
July 22 (Bloomberg) -- Crude oil fell more than $3 a barrel, dropping to a six-week low, on forecasts a tropical storm in the Gulf of Mexico will miss oil installations and the dollar rebounded against the euro, reducing the appeal of commodities.
Oil declined below $126 a barrel, down more than $21 from a record $147.27 reached on July 11, as Tropical Storm Dolly moved toward the Texas border with Mexico. The dollar rose on signs that U.S. interest rates may increase. Senate Democrats today cleared the first hurdle for legislation that aims to curb speculation in energy markets.
``There are dual causes to today's move lower,'' said Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``There's a strong move by the dollar, which always puts pressure on energy prices. We aren't worried about Dolly anymore, also putting pressure on prices.''
Crude oil for August delivery fell $3.09, or 2.4 percent, to settle at $127.95 a barrel at 2:58 p.m. on the New York Mercantile Exchange, the lowest settlement price since June 5. Futures are up 69 percent from a year ago. The August contract expired today. The more-active September contract declined $3.40, or 2.6 percent, to settle at $128.42 a barrel.
The number of outstanding oil futures in New York dropped to the lowest in 17 months as oil companies, refiners and institutional investors exited the market. Open interest fell 2.6 percent yesterday to 1.23 million contracts on the Nymex, according to data from the exchange.
Gasoline for August delivery fell 7.01 cents, or 2.2 percent, to $3.147 a gallon in New York, the lowest close since May 8. Futures reached a record $3.631 a gallon on July 11.
Lower Pump Prices
Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.4 cents to $4.055 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.
U.S. gasoline demand fell 3.3 percent last week from a year ago, the 13th consecutive weekly decline, as Americans react to record pump prices by driving less, a MasterCard Inc. report today showed.
Dolly strengthened over the Gulf of Mexico, and may become a hurricane before making landfall, the U.S. National Hurricane Center said today. Offshore fields in the Gulf are responsible for about 25 percent of U.S. oil production.
The storm's maximum sustained winds strengthened to almost 70 miles (110 kilometers) per hour, the agency said in an advisory on its Web site at 1 p.m. central time. Dolly was 195 miles southeast of Brownsville, Texas, and moving west at 10 mph, with a turn toward the west-northwest forecast.
Oil producers shut about 4.7 percent of production in the U.S. Gulf of Mexico, as they evacuated personnel from 49 platforms and six rigs in preparation for the storm, the government's Minerals Management Service said today.
Katrina and Rita
U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita shut refineries and platforms as they struck the Gulf of Mexico coast in August and September 2005. Katrina shut 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the hurricanes.
Brent crude oil for September settlement dropped $3.06, or 2.3 percent, to settle at $129.55 a barrel on London's ICE Futures Europe exchange, the lowest since June 5.
The dollar increased 0.9 percent to $1.5775 per euro at 3:40 p.m. in New York, from $1.5922 yesterday. It fell to $1.6038 on July 15, the weakest since the European currency's 1999 debut.
The U.S. currency rose as Treasury Secretary Henry Paulson predicted lawmakers will pass a bill this week to shore up confidence in Fannie Mae and Freddie Mac. Federal Reserve Bank of Philadelphia President Charles Plosser said the Fed should raise interest rates ``sooner rather than later'' to lower inflation.
Speculation Measure
Legislation introduced by Senate Democrats won approval to proceed to debate, in a 94-0 vote today. Democrats said the measure could reduce oil prices as much as 50 percent.
``The fact that they were unanimous is surprising,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``It will make the market more transparent, which is a good first step. There doesn't appear to be anything in the legislation that is so onerous that it would hurt the futures market.''
Legislation requires the Commodity Futures Trading Commission to impose limits on speculative trading in oil and natural gas futures markets. It also requires more reporting in energy markets to prevent market manipulation.
``This has the potential to move some people out of the market,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``That alone may be enough to spur some selling.''
Airlines, truckers and chemical makers have been hurt by the rise in fuel prices and their limited ability to pass on the costs to consumers. United Airlines parent UAL Corp., US Airways Group Inc. and JetBlue Airways Corp. today posted losses for the second quarter.
To contact the reporter on this story: Mark Shenk in New York at mshenk1[at]bloomberg.net.

Bloomberg.com: Commodities

NEW YORK - Oil prices tumbled more than $3 a barrel Tuesday as Tropical Storm Dolly grew increasingly unlikely to threaten supply, giving traders one less reason to buy as a strengthening dollar helped keep prices in check.


The sell-off was a throwback to last week's sharp declines, and dragged crude to its lowest level since early June. It was oil's fifth decline in the last sixth sessions.
Light, sweet crude for August delivery fell $3.09 to settle at $127.95 a barrel in its last trading day on the New York Mercantile Exchange. Earlier the contract, which will be replaced by September crude Wednesday, dropped as low as $125.63.


Oil off more than $3; CFTC cites demand for run-up - Yahoo! News

Oil Falls Below $125 as U.S. Fuel Supplies Gain, Demand Drops
By Mark Shenk
July 23 (Bloomberg) -- Crude oil futures fell below $125 a barrel for the first time in seven weeks after a U.S. government report showed that fuel stockpiles increased as consumption tumbled to the lowest in more than a year.
Gasoline supplies rose 2.85 million barrels last week, the Energy Department reported. Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 2.42 million barrels. U.S. fuel demand averaged 19.9 million barrels a day, the lowest since January 2007.
``The inventory and demand numbers make it clear that demand is being affected by high prices and the weak economy,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``The 19.9 million barrel demand number is incredibly low and has to have the bulls worried.''
Crude oil for September delivery fell $3.98, or 3.1 percent, to settle at $124.44 a barrel at 2:59 p.m. on the New York Mercantile Exchange, the lowest close since June 4. Futures are up 66 percent from a year ago.
``Technically, we are looking for oil to settle below $121.61 and $120.75 a barrel, which were lows before the start of summer,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``If we do, you can expect the market to break down further.''
Oil fell as low as $121.61 a barrel on June 5 and touched $120.75 on May 15.
Demand has dropped for three straight weeks, the Energy Department report showed. U.S. fuel consumption averaged 20.3 million barrels a day in the past four weeks, down 2.1 percent from a year earlier, the department said.
Refinery Operations
Refineries operated at 87.1 percent of capacity last week, down 2.4 percentage points from the week before, according to the department. It was the lowest utilization rate since the week ended May 9. Refineries were forecast to operate at 89.5 percent of capacity last week, unchanged from the week before, according to the median of analyst estimates in the Bloomberg survey.
Crude-oil inventories dropped 1.56 million barrels to 295.3 million. Stockpiles were forecast to decline 675,000 barrels, according to the survey results.
``Any bullish impact from the crude-oil drop has been offset by rising product inventories in the face of falling refinery utilization rates,'' said Bill O'Grady, director of fundamental futures research at Wachovia Securities in St. Louis. ``This is another sign that demand is being hammered. You've reached a price level where there's a demand response.''
Analysts were split over whether gasoline inventories rose or fell last week, the survey showed. Distillate supplies were forecast to climb 2.5 million barrels.
Gasoline Prices
Gasoline for August delivery fell 11.26 cents, or 3.6 percent, to settle at $3.0344 a gallon in New York, the lowest close since May 2. Futures reached a record $3.631 a gallon on July 11.
Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.3 cents to $4.042 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.
Crude oil has tumbled 16 percent from a record $147.27 a barrel on July 11, as a stronger U.S. dollar limited the appeal of commodities as a hedge against inflation and high prices cut fuel consumption. Price also fell the past two days because a hurricane moved away from oil platforms in the Gulf of Mexico.
Interest Rates
Oil and other commodities may drop further and the dollar increase if the Federal Reserve boosts interest rates to curb inflation. Philadelphia Fed President Charles Plosser today said higher mortgage costs and continued declines in house prices pose no bar to raising interest rates.
Policy makers must increase borrowing costs before inflation expectations become ``unhinged,'' Plosser said in an interview with Bloomberg Television today.
The dollar rose 0.5 percent to 107.90 yen at 2:55 p.m. in New York, from 107.33 yesterday. It reached 107.97, the highest since June 26. The U.S. currency appreciated 0.7 percent to $1.5674 per euro, after rising to $1.5670, the strongest since July 9.
The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 31 percent in the first half of the year as the U.S. currency retreated 8 percent. The index has fallen 8.8 percent this month as the dollar has stabilized.
Hurricane Dolly
Hurricane Dolly came ashore in southern Texas today, where coastal residents sustained their first direct hit by a hurricane in almost a decade. Dolly packed winds of 100 miles (161 kilometers) per hour as its eye hit South Padre Island, about 35 miles (50 kilometers) northeast of Brownsville, at 1 p.m. local time, according to the U.S. National Hurricane Center.
Dolly is the season's first hurricane in the Gulf of Mexico, home to about a quarter of U.S. oil production. The storm has steered south of most rigs, which are off the East Texas and Louisiana shores.
Brent crude oil for September settlement dropped $4.26, or 3.3 percent, to close at $125.29 a barrel on London's ICE Futures Europe exchange, the lowest settlement since June 4.
To contact the reporter on this story: Mark Shenk in New York at mshenk1[at]bloomberg.net.

Bloomberg.com: Worldwide

Around $125.

I thought demand outstripped supply if you base things on bkkandrew's thoughts - hmmm perhaps Butterfy is right? Bubble seems to be slowly evaporating.

^ yeah, probably those Chinese buying less cars

we all know that buying cars determine oil prices

I sincerely hope the speculators have lost a lot of money.
Investment is an engine of any free market enterprise system, but it can get a bit out of kilter when speculation unrealistically drives up prices so high that it actually hurts the general economy. These investment bubbles seem a bit like pyramid selling--- last one on gets to take the loss. Last year it was real estate, this year it is oil.

Originally Posted by Butterfly

we all know that buying cars determine oil prices

Thats open to debate but one undeniable fact is that American are buying cars based on the price of oil right now and that means smaller and more efficient than they have been used to.
evidence linky

Basically the 40 page report says the world economy has grown at a rate of 5% a year for the last 4 (or 5) years without a corresponding increase in oil production. I don't know how this can be with Russia expanding its oil production are other countries slacking off? The report also says concerning specualtion there were actually more short sales of oil then there were long buys. This I don't understand. There is always another person on the other side of the transaction. For every seller there is a buyer and vice versa.

The oil speculator sideshow - Jul. 24, 2008


newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf] Inter-agency report pdf.

That link there doesnt work Attaboy becuase there is an "at" symbol in it. The td swear / spam filter does not allow the "at" symbol be displayed so to get to the link you need to copy (dont click)this into your browser:

http://www.cftc.gov/stellent/groups/public/

then type in an "at" symbol and then copy and paste the rest of the link:

newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf

Originally Posted by Spin

Thats open to debate but one undeniable fact is that American are buying cars based on the price of oil right now and that means smaller and more efficient than they have been used to.

Americans are buying smaller cars after the fact, if oil was cheap again, they would buy the same big cars again, just because they like them

this should be made a criminal offense,

Not so certain Butterfy - I think Yanks are starting to get the message.

Mind you love sporting around in my SUV even if gas were 10quid a liter.

Originally Posted by attaboy

Basically the 40 page report says the world economy has grown at a rate of 5% a year for the last 4 (or 5) years without a corresponding increase in oil production. I don't know how this can be with Russia expanding its oil production are other countries slacking off? The report also says concerning specualtion there were actually more short sales of oil then there were long buys. This I don't understand. There is always another person on the other side of the transaction. For every seller there is a buyer and vice versa.

The oil speculator sideshow - Jul. 24, 2008


newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf] Inter-agency report pdf.

I guess everyone needs to find reasons for things based on how they can process information. This supply demand stuff, this big car little car stuff, it's all meaningless, but it helps sell newspapers and allows people to believe they are informed.

The fact is that every month individuals and funds have been buying at the ask oil futures and rolling out futures they already hold. The fact is that's illegal if that causes you to have a too great a position in the market. The fact is many of these funds have ilegal positions. The fact is that the US Congress just passed legislation creating punitive measures for these funds noncompliance. The fact is these funds now here regulatory footsteps and are getting in compliance FAST and there's more unwinding still to do.

Those facts have nothing to do with what the true price of crude ought to be based on supply/demand. That willbe known later after this buyers only market gets regulated. It's possible it will lead to even higher prices, but I very much doubt it.

Originally Posted by Spin

That link there doesnt work Attaboy becuase there is an "at" symbol in it. The td swear / spam filter does not allow the "at" symbol be displayed so to get to the link you need to copy (dont click)this into your browser:

http://www.cftc.gov/stellent/groups/public/

then type in an "at" symbol and then copy and paste the rest of the link:

newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf

(If anyone is interested the pdf link is in the cnn article which I linked)

Originally Posted by lannarebirth

The fact is that's illegal if that causes you to have a too great a position in the market.

not sure if it's illegal, they could buy contracts and short them at the same time, for different maturity, as a technique to limit their exposure to risk

don't think short selling is against the laws for the majority of these speculative funds, they might misrepresent the risks to their clients, but that's about it

now that the cat is out of the bag about speculation and the "imaginary" demand driving those prices, things will be back to normal, and the oil industry will be miserable again

Originally Posted by Butterfly

Originally Posted by lannarebirth

The fact is that's illegal if that causes you to have a too great a position in the market.

not sure if it's illegal, they could buy contracts and short them at the same time, for different maturity, as a technique to limit their exposure to risk

don't think short selling is against the laws for the majority of these speculative funds, they might misrepresent the risks to their clients, but that's about it

now that the cat is out of the bag about speculation and the "imaginary" demand driving those prices, things will be back to normal, and the oil industry will be miserable again

well, I'm not sure speculation is the right word. it's speculation in as much that buying anything is speculation. In fact it is not speculation when the amount of money moving in that will always buy at any price moves the market in only one way...up. Unfortunately they had to take position sizes (and continue to) that are illegal.

Here's a good explanation of what I'm talking about:

Written testimony of Mr Michael Masters

and the subsequent legislation:

Commodities Now - New CFTC Powers In Farm Bill To Close 'Enron Loophole'

These are giants barging there way into a midget sized market that was created solely for producers and hedgers. they sold it to the public as a "new asset class", which is pure bullshit.

Nothing wrong with speculation, but what is happening in commodities markets is not mere speculation it is fraudulant.

Well, (despite the nonsense spouted by Butterfly) the race is is on to see how far falling US demand can offset Chindia's rising thirst for the stuff (on these figures, the US fall is not fast enough...):

By Mark Shenk



July 30 (Bloomberg) -- Crude oil rose more than $4 a barrel, the biggest gain since July 10, after the U.S. Energy Department reported the first decline in gasoline inventories in five weeks.

Supplies fell 3.53 million barrels to 213.6 million barrels last week, the department said today. Stockpiles were forecast to rise 350,000 barrels, according to a Bloomberg News survey. Crude supplies fell less than forecast and inventories of distillate fuel, a category that includes heating oil and diesel, rose.

``We are focused on the gasoline number because it had the greatest variance from expectations,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``This is the first bullish gasoline news in weeks.''

Crude oil for September delivery rose $4.58, or 3.8 percent, to settle at $126.77 a barrel at 2:54 p.m. on the New York Mercantile Exchange, the highest close since July 22. Futures touched $120.42 a barrel yesterday, the lowest since May 6. Prices are up 65 percent from a year ago.

U.S. fuel consumption averaged 20.2 million barrels a day in the past four weeks, down 2.4 percent from a year earlier, the department said.

Gasoline demand in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.

`Eye-Opening' Number

``The gasoline number is eye-opening,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``It's getting most of the attention, but the driving season is coming to an end with only one month left and supplies are still ample.''

The drop in gasoline inventories last week left stockpiles 3 percent higher than the five-year average for the period, the department said.

Gasoline for August delivery rose 12.74 cents, or 4.2 percent, to settle at $3.1351 a gallon in New York, the highest close since July 22. It was the biggest one-day increase since June 11. Prices touched $2.9801 yesterday, the lowest since May 5. Futures reached a record $3.631 a gallon on July 11.

Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.5 cents to $3.926 a gallon, AAA, the nation's largest motorist organization, said on its Web site. Prices reached a record $4.114 a gallon on July 17.

``Gasoline has been the weakest link in the energy complex,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``The gasoline number is a little bright light for the bulls, because otherwise the report is pretty bearish.''

Crude oil supplies declined 81,000 barrels to 295.2 million barrels last week, the report showed. A 1.3 million barrel drop was forecast in the Bloomberg News survey.

Distillate Supplies

Inventories of distillate fuel rose 2.4 million barrels to 130.5 million barrels last week, the report showed. A gain of 2.05 million was forecast, according to the median of 12 analyst estimates.

``I believe the distillate build is more important than the gasoline number,'' Mueller said. ``It shows that refiners are turning their attention to the winter.''

Goldman Sachs Group Inc., the world's biggest securities firm, said oil will recover to reach $149 a barrel by the end of this year because consumer demand has been ``restrained, but not destroyed,'' by record prices.

``The gasoline number obviously started the move higher,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``It's also part technical because we failed to take out $120. The Goldman Sachs Group Inc. is also a part of what's moving things higher.''

Nigerian Oil

Falling Nigerian output is also supporting prices. Nigeria is now producing less than 1 million barrels of crude a day because of attacks by militants, ThisDay reported, citing an unidentified energy ministry official. Nigeria was the fourth- biggest source of U.S. oil imports during the first five months of the year, according to the U.S. Energy Department.

Prior to the escalation of militant attacks that began in February 2006, Nigeria pumped as much as 2.6 million barrels a day, the paper said. The country was Africa's biggest oil producer until April when it was surpassed by Angola.

Iranian Supreme Leader Ayatollah Ali Khamenei said his country will push forward with its nuclear program. The Persian Gulf country's highest authority spoke before a deadline for Iran to reply to an offer from world powers of economic and diplomatic incentives in exchange for the suspension of its uranium- enrichment activities.

``Iran will pursue its peaceful nuclear energy,'' state television cited Khamenei as saying today. ``No one can undermine the nation's attempt to progress.''

Concern that the dispute over Iran's nuclear program might disrupt shipments from the country has supported prices since January 2006.

Brent crude oil for September settlement rose $4.39, or 3.6 percent, to settle at $127.10 a barrel on London's ICE Futures Europe exchange.

From:

http://www.bloomberg.com/apps/news?p...QRo&refer=home

Originally Posted by bkkandrew

Well, (despite the nonsense spouted by Butterfly) the race is is on to see how far falling US demand can offset Chindia's rising thirst for the stuff (on these figures, the US fall is not fast enough...):

Where have you been troll ? hiding when it was clear you were a complete fraud and a loonie

I bet those Chinese have bought a few cars hence explaining the sudden rise in prices

btw check the links about speculators, you might learn something

^Unlike you, I am busy. I am sure that more cars have been sold in China. Do you doubt that?

Demand for oil is a tussle between expanding Chindia demand and contraction of demand in US, due to the collapsing economy.

But you wouldn't understand...

China's economy is collapsing?

^Can you read?

contraction of demand in US, due to the collapsing economy.

Which word were you stuck on?

Originally Posted by bkkandrew

^Unlike you, I am busy.

yeah, yeah, busy with the mianoi, we know already

Originally Posted by bkkandrew

Demand for oil is a tussle between expanding Chindia demand and contraction of demand in US, due to the collapsing economy.

But you wouldn't understand...

and of course all market players have access to that data live, in real time, not letting their emotions running any of it

I was being ironic - Yank economy is no where near collapsing, so I humbly submit you are out of your mind and have lost the plot.

Originally Posted by britmaveric

Yank economy is no where near collapsing

Scotch Mist

^ it grew though.