Tuesday, October 28, 2008

Weak Demand Driving Oil Prices Down, Not Supply

While OPEC Secretary-General Abdalla el-Badri said the leaders of countries will definitely get together again if the recent daily cut of 1.5 million barrels in oil production doesn't curb plunging prices, it won't really matter, as it's not supply driving prices down, but demand.

Jittery consumers will continue to cut back on driving and traveling in response to the credit crisis and economic weakness.

"Until you see a change in economic sentiment, there won't be any sustained rallies in the oil market," said Kyle Cooper, an analyst at IAF Advisors in Houston. OPEC "can announce all the cuts they like and the market will ignore it."

Even if there is another meeting and decisions made to drop daily production more, it's doubtful all the countries would be willing or able to comply with the agreement anyway, which would do more harm to OPEC than help, as it would make it look even more desparate.

A number of OPEC countries are in great need for cash just like most countries around the world.

Gasoline usage dropped again last week, falling by 6.4 percent from the same period a year ago. Declining prices at the gas stations did nothing to jumpstart demand.

Crude oil closed down 49 cents today for December delivery, settling at $62.73 a barrel on the New York Mercantile Exchange.

In after-hour trading it rebounded some to $64.37 a barrel at about 4:00 EST.

On the London Ice Futures Europe exchange, Brent crude fell another $1.12, to settle at $60.29 a barrel.

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