Thursday October 30, 2008

NYMEX crude oil prices jump 10%, recovering from $61.30 low on Fed rate cut to 1%

bloomberg.com :

Crude oil climbed as much as 10% amid signs that central bank interest-rate cuts may help revive fuel demand. The Federal Reserve lowered its benchmark interest rate by half a point to 1 percent today [29 Oct 2008], matching a half-century low. China also lowered rates today and the European Central Bank [ECB] may reduce them next week. Crude oil futures for Dec 2008 delivery rose as much as $6.51, or 10%, to $69.24 a barrel in after-hours electronic trading. Prices have tumbled 54% since reaching a record $147.27 on July 11, and hit a low of $61.30 earlier. Investors often purchase crude oil and other dollar-priced commodities when the US currency drops because of their use as an inflation hedge.

- That was quite a move. Commodity and especially crude oil bulls can probably heave a sigh of relief as crude oil prices have recovered from a relentless over 2-month drop day after day, so much so that peakoilers like myself have been joking on the boards that if NYMEX crude oil prices continue to drop $4-5 every day, in about 2-3 weeks' time, crude oil would have been free.

Of course, nothing goes straight down - or straight up for that matter. Just as the contrarians started to get nervous when crude oil went on its near-vertical ride to the $147.27 record, conversely on the other side, we have been getting increasingly nervous as the US dollar went ballistic, and everyone piled in on the same side of the trade.

The contrarian community has been looking out for a USDX trend reversal for some time now, and while we would still need confirmation to see if in the coming weeks it continues to drop below 86, 84, 82 and then solidly below the 23-year US dollar index support line of 80, this could be it, coming off from the recent USDX high of 87.884 :

It is still early days yet, but in time we'll see if the combination of a Fed rate cut, OPEC production cut, and continued supply declines due to Peak Oil (no, it has *not* been cancelled) are enough to trump over demand destruction due to the financial meltdown and credit crisis.

See also :

1. Fed cuts interest rate 3/4 of a point
2. Fed cuts interest rate by another 3/4 of a point
3. OPEC announces production cut of 520,000 barrels per day
4. NYMEX crude oil falls for the third day to below $72 on recession concern
5. OPEC agrees to production cut of 1.5 million barrels a day from Nov 2008

(2008-10-30 09:05:23 SGT) [Energy] Permalink

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