Friday November 21, 2008

NYMEX crude oil drops below $50 on global economic slowdown

bloomberg.com :

Crude oil tumbled to the lowest since May 2005 as a recession in the US, Europe and Japan cut global energy consumption. Crude oil futures have dropped 66%, or nearly $100, since reaching a record $147.27 as the world economic crisis reduced global demand growth to its weakest in 23 years. NYMEX crude oil prices for Dec 2008 delivery fell as low as $48.64 today [20 Nov 2008]. The drop accelerated after US lawmakers delayed action on a $25 billion bailout for struggling domestic automakers. US consumer prices plunged 1% last month, the most since records began in 1947, increasing deflation concerns.

Prices may fall as low as $40 a barrel by Apr 2009, Deutsche Bank said. OPEC, supplier of more than 40% of the world's crude, has lost $700 billion in revenue because of falling prices, and may lower output by a further 1 million barrels a day, extending earlier production cuts. The drop in oil prices may cut investment. As many as 44 projects by companies including Saudi Aramco, Shell and Petrobras have been delayed or face spending reduction.

- There was an ongoing thread over at the peakoiler forums on how low crude oil prices might go. Some said $55 (that's over now), some said $50 (that's over too), others picked $40. I picked $42. You know, 42. The answer to life, the universe, and everything.

This might be another case of being careful what you wish for because you just might get it. I said earlier that the only thing that would pull crude oil prices below $100 would be a global economic collapse :

* at $105 oil on 4 Sep 2008 : the $100 level should hold, but if this support level fails, we could probably get ready to declare an imminent global economic collapse.
* at $92 oil on 16 Sep 2008 : There is no longer any point in being long oil, wheat, or any other commodities if indeed this is a global economic collapse which will completely wipe out demand, shrink economies ...

And it looks like we are in full-blown economic collapse mode right now. Just take a look at the Baltic Dry Index. Or China's closure of 67,000 factories. Or the ongoing collapse of GM. Global economic collapse equals much lower demand for crude oil, and if global demand falls through the floor then there is no telling where is the bottom here.

Welcome to the Second Great Depression. As in the first one, things may get cheaper, but again, like last time, wages may fall faster than things get cheaper, so people get screwed anyway. It will be the inverse of what happens in an inflationary cycle where things get more expensive faster than people's salaries can keep up.

The contrarians are still holding out for a hyperinflationary collapse at the end (we always try to look ahead) but the thinking now is that when it happens, it will be an extremely violent event. There's a lot more to talk about, more on this later.

See also :

1. NYMEX crude oil price falls below $90 as credit crisis deepens in Europe
2. NYMEX crude oil drops below $80 as financial market meltdown continues
3. NYMEX crude oil falls for the third day to below $72 on recession concern
4. NYMEX crude oil drops below $60 on demand destruction concerns
5. Peak Oil : IEA reports global depletion rate could go up to 9.1%, struggle to produce crude oil

(2008-11-21 09:02:32 SGT) [Energy] Permalink Comments [2]

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