Friday July 04, 2008

NYMEX crude oil prices hit $145.85 record as stocks tumble and OPEC blows smoke

This article belongs to the NYMEX crude oil price records story arc.

bloomberg.com :

Crude oil traded near a record in New York above $145 a barrel as investors purchased commodities as an alternative to flagging equities markets. Oil has risen 19 out of 27 weeks this year as money managers bought crude futures rather than US stocks, which yesterday [3 Jul 2008] completed the longest streak of weekly declines in 4 years. Crude oil for August 2008 delivery climbed to $145.85 a barrel, the highest since trading began in 1983. Prices have more than doubled in the past year.

- The reasons (or excuses?) being given for the ongoing crude oil all-time record breaking streak have ranged from Nigeria to speculators to a weak dollar to Libya to falling stock markets, back to Iran, and now it's back to falling stock markets. You'd have thought that they should have made up their mind by now. Of all these reasons, the "falling stock markets" excuse has got to be the flimsiest one yet.

It implies a relationship where no such relationship exists, since if falling stock markets lead to rising crude oil prices, rising stock markets should conversely to falling crude oil prices. It can be easily shown that there is no plausible inverse relationship between oil prices and stock prices by lining up historical charts of NYMEX crude oil and the S&P 500 stock index as shown below :

As can be seen, when stocks went down, oil had gone up. But when stocks went up, oil had also been going up. So the media is trying to blow smoke up our collective rear ends when it claims that falling stock prices have been driving up crude oil prices to new records. Talking about blowing smoke, here's another one : The world has as much as 5 trillion to 7 trillion barrels of oil yet to be developed, located in "challenging" areas or acreage closed to exploration, Saudi Arabian Oil Minister Ali al-Naimi said.

We could suppose that he's talking about the couple trillion barrels of tar sands and perhaps another couple trillion barrels of oil shales, both of which can hardly qualify as conventional oil sources. He did not mention the type of oil that's included in these 5 or 7 trillion barrels, so we could perhaps classify that as "blowing smoke by omission".

See also :

1. Crude oil prices hit $144.32 record on NYMEX while stocks enter bear market
2. NYMEX crude oil hits $143.67 record on Iran concerns
3. NYMEX crude oil hits $142.26 record, investors flee falling stock markets
4. Crude oil hits $140.39 record on NYMEX as Libya warns of output cut

(2008-07-04 18:59:35 SGT) [Energy] Permalink

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