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

^If you don't understand the point being made, it is a bit foolish to comment on it...

Well good news should drop future prices if I follow what you are saying? We've had major discovery of oil fields and price doesnt seem to drop. As for Iran - they aren't going to do shite because if they do, they know it will be the end for them. So I find it difficult to buy that news of Iran firing missiles affects the price of oil.

Jet Fuel Premium Collapse as Airlines Ground Fleets (Update2)
By Robert Tuttle



July 14 (Bloomberg) -- Jet fuel's 100 percent rise over the past year to a record $4.36 a gallon is setting the stage for its decline in the next six months.
AMR Corp.'s American Airlines Inc. and UAL Corp.'s United Air Lines Inc. are among carriers readying their biggest cutback in fuel use since 1991 because of the price. The U.S. airline industry plans to ground 413 aircraft, eliminating 8.8 percent of seating capacity, as increasing fuel costs spur losses of as much as $13 billion, the Air Transport Association says.
Fuel demand will fall 7.5 percent this year, or 95,000 barrels a day, and 104,000 barrels a day in 2009, according to the U.S. Energy Department. That will spur as much as a 90 percent decline in the fuel's premium to heating oil futures, said Mike Busby, manager of oil and refined-products trading for Northville Industries Corp. in Melville, New York.
``People are responding to a doubling of prices and the airline industry is one industry that is responding,'' said Edward Morse, chief energy economist at Lehman Brothers Holdings Inc. ``The markets will weaken significantly after the third quarter.''
The decline in airline fuel consumption parallels the drop in gasoline sales to a five-year low as drivers take vacations closer to home and use mass transit. Crude oil declined 35 percent in the three months after Sept. 11, 2001, a time when airline traffic plummeted 30 percent.
Jet fuel, along with diesel, is traded at a differential to heating oil futures because the fuels are made from similar components of crude oil at the refinery.
Jet fuel, a form of kerosene used to power jets, sold for 19.5 cents a gallon more than the heating oil contract in the New York Harbor market today, twice the average during the past five years, according to data compiled by Bloomberg.
The fuel's premium should decline to 2 to 8 cents a gallon by the fourth quarter, Busby said.
Price Decline
The airline cutbacks ``should help bring the price down,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. The current premium is because of ``more than anything the summer demand, the peak demand.''
In 1991, when U.S. jet fuel consumption slid 8.2 percent, crude oil fell 40 percent from a high of $32 a barrel in January to $19.12 by the end of the year. Jet fuel traded at a 1.55 cent discount to heating oil by Dec. 11 of that year, down from a 3.85 cent premium six months earlier.
Lehman Brothers expects crude oil to average about $90 in the first quarter of next year. Oil climbed to a record $147.27 a barrel on July 11 amid rising fuel demand in China and India, and the potential threat of an Israeli air strike on Iran. Airline cutbacks may help send the price to $107 a barrel in 2009, Merrill Lynch & Co. said in a July 7 report.
Falling Demand
Demand for oil will be less than half of initial forecasts, increasing by 616,000 barrels a day, because of the slide in transportation use, Merrill Lynch said.
Jet fuel fell 1.67 cents to $4.2599 a gallon in New York Harbor today. It's gained 50 percent this year and touched the record $4.36 on July 3.
Heating oil for August delivery fell 1.17 cents, or 0.3 percent, to settle at $4.0649 a gallon on the New York Mercantile Exchange today. The contract reached a record $4.1586 a gallon on July 11.
U.S. jet fuel consumption for the four weeks ended July 4 was 2.2 percent lower than a year earlier, according to Energy Department data.
`Demand Destruction'
``There is definitely demand destruction going on,'' Sung Yoo, an oil analyst at JPMorgan Chase & Co., said in a telephone interview. ``We could see a bit of a pullback of the entire oil complex after the summer.''
Last month, Northwest Airlines Corp. said it would ground 14 Boeing Co. 757 planes and Airbus jets during the final three months of 2008. Overall, Northwest is reducing its domestic and international flying by up to 9.5 percent, the airline said in a regulatory filing.
Airline cutbacks are part of a broader trend in which higher fuel prices are reducing consumption. U.S. gasoline demand in the four weeks ended July 4 averaged 9.3 million barrels a day, down 2.1 percent from the same period a year earlier.
The reduction in U.S. fuel consumption may not be sufficient to reverse oil's climb toward $200, said Adam Sieminski, chief energy economist at Deutsche Bank AG. ``The difficulty is that demand is still rising in China and the Middle East and the rest of the world'' while oil production may be leveling off, he said. ``What price does it take to have demand growth go to zero to match zero supply growth? That's very scary because it might take a really high price.''
Overseas Expansion
While U.S. airlines cut back, some carriers overseas are expanding, ``soaking up demand reductions achieved in the United States,'' Merrill Lynch said in a July 4 report.
Exports of the fuel for the first four months of the year averaged 55,000 barrels a day, the highest since 2005, U.S. Energy Department data show. For the week ended July 4, U.S. jet fuel imports fell to 34,000 barrels a day, the lowest since Aug. 19, 2005.
The narrowing of jet fuel's premium to heating oil may be limited if refiners don't increase crude processing rates, Beutel, the energy consultant, said.
``One of the biggest factors here is the simple inability of refiners to bring up their runs,'' he said. ``We are still below 90 percent and that is unheard of.''
Operating Rates
Refiners have operated at an average of 86.4 percent capacity this year, the lowest since 2001, Energy Department data show. U.S. jet fuel production averaged 1.62 million barrels a day, 3.5 percent lower than a year earlier and inventories of 38.8 million barrels were 6.1 percent lower than a year earlier.
The airline cutbacks also may not be as bad as expected, said Jason O'Connor, head of refined products trading at Starsupply Petroleum, a division of GFI Group Inc., in Norwalk, Connecticut.
``With the airlines, a lot of this could be political posturing,'' he said.
To contact the reporter on this story: Robert Tuttle in New York at rtuttle[at]bloomberg.net

Bloomberg.com: Exclusive

I've bolded the most important part of the article.

Originally Posted by Norton

Originally Posted by Jet Gorgon

It's supply and demand.

Show me where supply decreased or demand increased because Iran conducted a missile test? IMO, oil price hikes in this case are based on pure speculation!

Market prices are always hinged to forecasts. Always. The outlook for supply and demand is key. Sure, Iran conducts a misile test, the markets go into a tizzy coz traders add that unexpected risk to the overall outlook. As soon as news happens, it's outdated. ie, the market bets on the Fed raising/lowering/maintaining rates; if it goes as expected, there are no stock price changes as the shift is already discounted. The markets are always forward looking. That's why there are analyst estimates.

Oil Is Steady Below $139 After Tumbling More Than $6 on Economy
By Margot Habiby
July 16 (Bloomberg) -- Crude oil was little changed below $139 a barrel in New York after tumbling more than $6 yesterday because of concern a slower U.S. economy will curtail demand.
Prices dropped as Federal Reserve Chairman Ben S. Bernanke said risks to growth and inflation have risen, in testimony to the Senate Banking Committee. He abandoned a June assessment that the threat of an economic slowdown had diminished.
``We're getting to the point where the market's looking at an increasing likelihood of a deep recession,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.
Crude oil for August delivery rose 2 cents to $138.76 a barrel at 8:33 a.m. Sydney time in after-hours electronic trading on the New York Mercantile Exchange. Futures reached a record $147.27 a barrel on July 11 and have risen 87 percent in the past year.
Oil fell $6.44, or 4.4 percent, to settle at $138.74 a barrel yesterday. It was the biggest percentage drop since March and the largest dollar decline since Jan. 17, 1991, when futures closed at $21.44. Oil fell as much as $9.26 to $135.92 a barrel.
``When it traded below $140, a big wave of selling hit,'' said Addison Armstrong, director of market research at TFS Energy LLS in Stamford, Connecticut. ``The market was trading a little bit above $140, and when it traded below, it fell something like $2 in a minute. Nothing seemed to hold it.''
Gasoline Demand
U.S. gasoline demand dropped 5.2 percent last week, the 12th consecutive weekly decline, a sign record pump prices are changing driving habits, a MasterCard Inc. report showed yesterday. Gasoline futures fell 17.29 cents, or 4.9 percent, to $3.3848 a gallon yesterday in New York. They were unchanged at 8:07 a.m. in Sydney.
The profit margin, or crack spread, for making three barrels of crude into one of heating oil and two of gasoline, reached its lowest since March 19 yesterday, based on futures prices. The crack spread fell 40.32 cents to $10.9410 a barrel.
The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, said it expects demand for its members' crude will fall in 2009 as the global economy slows. Demand for OPEC crude next year will average 31.2 million barrels a day, a drop of 710,000 barrels a day from the forecast for 2008, the group said in its monthly oil market report yesterday.
``The whole U.S. economic scene is sort of being questioned and obviously that would say something about the demand for oil,'' said Paul Tossetti, director of oil market analysis at PFC Energy in Washington.
Brazilian Strike
Also pressuring prices, Petroleo Brasileiro SA, Brazil's state-controlled oil company known as Petrobras, said it resumed normal crude production at the Campos Basin after a strike that began July 14.
Royal Dutch Shell Plc, Europe's biggest oil company, ended a force majeure on exports of Nigerian Bonny Light crude. Force majeure is a legal clause that allows producers to miss deliveries because of circumstances beyond their control. The clause was imposed after attacks on a crude-oil installation in May. The Movement for the Emancipation of the Niger Delta, or MEND, claimed responsibility.
Brent crude oil for August settlement fell $5.17, or 3.6 percent, yesterday to $138.75 a barrel on London's ICE Futures Europe exchange, after touching $134.96 a barrel. The August contract, which expires today, reached a record $147.50 on July 11. The more widely held September contract dropped $5.47, or 3.8 percent, yesterday to $139.86 a barrel. It touched $136.20.
Lower Inventories
``It's time for everyone to reassess where this market is headed and whether the try for $150 is worth the risk,'' Tim Evans, an energy analyst for Citi Futures Perspective in New York, said in an e-mail yesterday. ``Today's answer is no!''
U.S. oil supplies probably fell last week as record prices discouraged buying by refiners. Supplies probably declined 2.2 million barrels in the week ended July 11 from 293.9 million the week before, according to the median of 10 responses by analysts surveyed before an Energy Department report at 10:35 a.m. Washington time today.
Gasoline stockpiles probably lost 100,000 barrels from 211.8 million barrels the week before, the survey showed. Distillate fuel, including heating oil and diesel, probably rose 2 million barrels from 122.5 million barrels the week before.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby[at]bloomberg.net

Bloomberg.com: Worldwide

And down we go again.

I'm quite interested to know if this airline story is true. That by cutting back on their jet fuel usage that they are going to reduce it back significantly.

finally some good news

Originally Posted by WSJ

Dow Closes Under 11000 Mark
The Dow industrials closed below 11000 for the first time in two years, sliding 92.65, or 0.8%, to 10962.54. Markets were volatile all day as investors digested comments from regulators and a plunge in oil prices. Crude saw its biggest one-day drop since the first Gulf War in 1991.

Now if we believe bkka and friends, the speculators apologists, this means that demand for oil of China and India suddenly reversed overnight

Originally Posted by Jet Gorgon

The markets are always forward looking.

Correct and that is the exact definition of speculation, preemptive actions for a future event. And they make mistakes because they are based on "estimates" or "moods". Nothing to do with reality. Forecasts sometimes are right, but they are also often wrong. The Market is usually overreacting rather than adjusting normally. And this is why market opportunities are often available, because markets are not always efficient.

Originally Posted by Butterfly

Now if we believe bkka and friends, the speculators apologists, this means that demand for oil of China and India suddenly reversed overnight

No, its been well documented that a number of key Western users, most notably airlines, have made it quite clear that their business models do not work at current price levels. There reaction has been to ground flights, cut routes and thereby use less oil. These announcements have also been reported on this forum and have occurred quite recently. Together with the disasterous state of the US economy gives us an immediate reduction in demand causes price drop shock!

In respect of your theory, I haven't heard much in the way of similar actions in Chindia, save for a report about how transportation costs threatened the Chinese model of goods manufacture and shipment.

144.90 USD Brent crude!

Originally Posted by good2bhappy

144.90 USD Brent crude!

No its not - its $138.81.

See:

Bloomberg.com: Commodity Futures

Originally Posted by bkkandrew

In respect of your theory, I haven't heard much in the way of similar actions in Chindia, save for a report about how transportation costs threatened the Chinese model of goods manufacture and shipment.

my theory is simple, the recent surge of oil price is purely speculative and has nothing to do with China or India. Both are used as lame excuses to justify such a high price. There is plenty of supply for everyone, and there is no demand shock.

i thought the world is only capable of supplying 85 million barrels per day. Suggested demand is approx 87 million plus. Thanks to emerging markets such as India & China.

^ even if those estimates are correct, a 2 million shorfall (less than 3% of overall supply) doesn't justify a jump of 200% in oil price because "demand" is too strong,

it doesn't add up, and if your BS alarm doesn't go off then you are in the group of people that believe that money can grow on trees,

Oil Falls More Than $4 on Report of Unexpected Supply Increase
By Mark Shenk
July 16 (Bloomberg) -- Crude oil futures fell more than $4 a barrel in New York after a surprise increase in U.S. inventories and as a slowing U.S. economy sapped demand for energy.
Supplies rose 2.95 million barrels to 296.9 million barrels last week, an Energy Department report showed. Stockpiles were forecast to drop 2.2 million barrels, according a Bloomberg News survey. Fuel demand averaged 20.3 million barrels a day in the past four weeks, down 2 percent from 2007, the department said.
``The inventory numbers are starting to reflect the bad macro-economic news,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Not only did we get a surprise build in crude-oil stocks, the products were also up nicely.''
Crude oil for August delivery fell $4.14, or 3 percent, to settle at $134.60 a barrel at 3 p.m. on the New York Mercantile Exchange. Prices dropped 7.3 percent since July 14, the biggest two-day decline since January 2007. Futures are up 81 percent from a year ago.
Oil today fell as low as $132 a barrel, more than 10 percent below the record of $147.27 reached on July 11. A drop of that magnitude is commonly referred to as a correction.
``Between the bearish DOE numbers and the price drop of the last two days it may be time to back up and re-evaluate whether the market is still bullish or now bearish,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``It's still unclear whether the funds will use this drop to buy futures or bail out.''
Gasoline Supplies
Gasoline stockpiles rose 2.47 million barrels to 214.2 million barrels, the report showed. An 800,000 barrel decline was forecast. Inventories of distillate fuel, including heating oil and diesel, gained 3.19 million barrels to 125.7 million, the department said. A 2 million barrel increase was forecast.
Gasoline for August delivery fell 10.54 cents, or 3.1 percent, to settle at $3.2794 a gallon in New York. Futures reached $3.631 a gallon on July 11, an all-time high.
Consumption of gasoline averaged 9.3 million barrels a day over the past four weeks, down 2.1 percent from the same period last year, the Energy Department supply report showed.
``I don't see anything bullish is this report,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``There were higher inventories across the board in the face of weak product demand.''
Imports Climb
Imports rose 13 percent to 10.8 million barrels a day in the week ended July 11, the highest since August, the report showed.
``We will have to see if this is a one-week blip or a sustained gain in supplies and imports,'' Mueller said. ``The strong import number may be a sign that the Saudis are both producing more and pricing it to move so refiners will take additional volumes.''
Saudi Arabia increased oil output by 280,000 barrels a day in June to 9.53 million barrels, the highest since March 2006, according to a Bloomberg News survey. In response to calls from consuming nations, the kingdom said it would produce an extra 300,000 barrels a day in June and another 200,000 barrels a day in July to curb prices.
Crude oil also fell because of the dollar's rise against the euro today, which reduced the appeal of commodities as an inflation hedge. The U.S. currency increased 0.6 percent to $1.5814 per euro at 3:07 p.m. in New York, from $1.5911 yesterday, when it declined to a record low of $1.6038.
Yesterday's 4.4 percent drop in New York crude oil futures was the largest since March, as Federal Reserve Chairman Ben S. Bernanke said that risks to U.S. economic expansion and inflation have risen.
`Enormous Jumps'
``The enormous jumps in oil prices and other commodity prices are, to some extent, due to real factors out of the control of the Federal Reserve,'' Bernanke said before the House Financial Services Committee today. ``The Federal Reserve cannot create another barrel of oil, it's the global supply and demand.''
Prices paid by U.S. consumers jumped 1.1 percent in June after a 0.6 percent gain the prior month, the Labor Department said today in Washington.
Plans by a high-ranking American diplomat to take part in nuclear negotiations with Iran have tempered speculation that the U.S. or Israel may attack OPEC's second-biggest oil producer in a dispute over its nuclear plans. Concern about a possible strike helped push oil prices to a record last week.
Undersecretary of State William Burns will participate in the European Union-Iran talks this weekend in Geneva, State Department spokesman Sean McCormack said today without giving details. This is a shift in the U.S. position on talks with a government it has shunned since 1980.
Chevron Corp. resumed contracted deliveries of crude oil produced onshore Nigeria, which were stopped following a militant attack on a pipeline last month.
Brent crude oil for August settlement declined $2.56, or 1.9 percent, to settle at $136.19 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $147.50 on July 11.
To contact the reporter on this story: Mark Shenk in New York at mshenk1[at]bloomberg.net.

Bloomberg.com: Worldwide

Originally Posted by Butterfly

^ even if those estimates are correct, a 2 million shorfall (less than 3% of overall supply) doesn't justify a jump of 200% in oil price because "demand" is too strong,

it doesn't add up, and if your BS alarm doesn't go off then you are in the group of people that believe that money can grow on trees,

I think OPEC ate too many cheap dollars and finally the price of oil is reflecting the dollars worth.

^T Boone Pickens , who is seldom wrong, has analyzed that'll go to $150.00 a barrel before too long.

^ I don't know who to believe.

Should I buy a some ETF in Oil today at this lower price and hope it rises, or will the airlines reduction in flights and the state of the world's economy mean it would be better to buy ETFs that short oil.

Maybe I should buy even amounts in both and hope that I can play it both ways.

Originally Posted by Boon Mee

^T Boone Pickens , who is seldom wrong, has analyzed that'll go to $150.00 a barrel before too long.

Doubtful Boon, more like under 100.00.

^ MrsQ, speculating on oil with your hard earn money is not recommended

try a mutual fund in Energy, it will diversified across many different type of energy, including renewables

Yesterdays price fall is attributed to the rise in stockpile levels in the USA. At 10.35am EST the news was released that there was more unused oil in the USA than there was a month ago. Oil dropped 6$ in 4 minutes. Therefore the price that the whole world pays for oil fell on one small piece of data. We have to realise that America is not the whole world and stockpiles in America dont affect demand in Brazil, Russia, India and China in a big way.There is some gossip around on the net that that Con. Rice has carved out some king of secret deal with the Iranians over their nuke program and missile testing. I dont have a link for this as I've only seen it on blogs, but reduced tensions in that region might see prices fall below the current support level of 130 and back towards 105.

^dropped $10 in two days, this just shows you how much BS is going on in the market. This is all a facade - time kick these OPEC lads in the balls, they are def playing us.

Originally Posted by Butterfly

it doesn't add up, and if your BS alarm doesn't go off then you are in the group of people that believe that money can grow on trees,

BS (blatant speculation) alarm is ringing loud and clear. Any prediction of future oil prices is an exercise in futility as long as speculation runs wild.

Dropped another $5 a barrel, hmmm heard a few reports say major drop will occur once the Chinese Olympics begins. (interesting to say the least)

^If anyone plots the oil price based on the Olympics, they are seriously deluded. What next - are you going to say the the of year oil price will be the Decathlon points total devided by the 100m men's final winning time?

Originally Posted by bkkandrew

^If anyone plots the oil price based on the Olympics, they are seriously deluded

not as deluded as those who plots future oil prices on "imaginary" demand from China and India

anway, who knows what's next really, speculators are still out there waiting for the next excuse to rush back on oil,