Tuesday November 11, 2008

NYMEX crude oil drops below $60 on demand destruction concerns

bloomberg.com :

Crude oil fell as equities dropped because of a worsening outlook for company earnings, renewing concerns the global credit crisis and financial meltdown will curtail energy demand. NYMEX crude oil prices have tumbled 58% since reaching a record $147.27 on July 11. Crude oil for Dec 2008 delivery rose yesterday [10 Nov 2008] on a $586 billion Chinese economic stimulus plan, but then dropped to $59.10, the lowest since March 20, 2007.

Oil slumped 10% last week as equities dropped, US fuel stockpiles rose more than expected and the US unemployment rate climbed to a 14-year high of 6.5%. The G20 called for lower interest rates. OPEC agreed on Oct. 24 to a production cut of 1.5 million barrels a day after global demand fell.

- So we're back on the "free crude oil" track. That's the ongoing joke nowadays anyway, but I'd suppose it's really un-funny considering the global economic collapse that is underway. Looking back, here's what I said earlier :

* 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 here we are bouncing around and dipping below $60. At this price level, the tar sands should be shutting down as they are no longer cost-effective, requiring at least $70-$80 oil to break even - some say $90. Higher-cost producers such as Iran and Venezuela are also yelling for further OPEC production cuts, as their cost also happens to be around the $80 to $90 level.

Since we are in a period of hyper-deleveraging leading to hyperdeflation, one wonders what the situation would be like when the trend finally reverses itself. I suspect that the result would not be pretty.

See also :

1. NYMEX crude oil price falls below $90 as credit crisis deepens in Europe
2. NYMEX crude oil rebounds off $87.56 low as governments respond to credit crisis
3. NYMEX crude oil drops below $80 as financial market meltdown continues
4. NYMEX crude oil falls for the third day to below $72 on recession concern

(2008-11-11 14:26:39 SGT) [Energy] Permalink

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