Wednesday, July 16, 2008

Oil Slick: Why Are Crude Prices Falling?

From Environmental Capital:

After crude oil’s biggest one-day drop in 18 years, there’s been no bounce—not even a dead-cat bounce. Crude kept falling in early Wednesday trading, even as the dollar rattled around at record lows against the euro.

What’s behind oil’s fall? There are suspects for all tastes—demand, supply, and the market itself. Let’s see.

Demand-side theorists point to bearish remarks Tuesday by Federal Reserve Chairman Ben Bernanke, who painted a gloomy picture for the U.S. economy. High energy prices and economic pain should mean less demand—and it is certainly holding true for gasoline, as demand fell last week by 5%. OPEC itself revised downward its own demand growth forecasts Tuesday. Many analysts figure “demand destruction” has finally arrived to kneecap runaway oil prices.

But the problem with that is that demand outside the U.S. and other rich countries continues to grow. While the U.S. is the single-biggest oil consumer, developing countries in tandem have a bigger—and growing—appetite. Even OPEC’s revision was only a 100,000 barrel-per-day downtick, or about 0.1% of global oil consumption....MORE