Thursday, December 18, 2008

Oil Plunges to Lowest Level in Four Years

Today on the New York Mercantile Exchange, oil fell to its lowest level in four years, dropping to $36.22 at the end of the trading day. That was a 9.6 percent or $3.84 plunge per barrel for January delivery.

While trading volume was higher for February, it still fell $2.94 to finish the session at $41.67 a barrel on the NYMEX.

OPEC is of course panicking at the potential unrest that will inevitably come if prices continue to fall, and so cut production by another 4.2 billion more barrels a day on Wednesday, but that hasn't impressed traders much, as assertions and practical cooperation are two different things. Many countries say they'll participate in cutbacks historically, but full cooperation rarely, if ever, happens.

Price is the driving force behind the decline, as economic weakness is causing consumers to cut back on driving. If prices were to go higher at this time, consumers would simply cut back more. It's not a good time for OPEC, and it could become an even more dangerous situation going forward in a number of the countries that are part of the organization.

It'll be difficult to develop a supply/demand balance going forward, as economic uncertainty and the unknown continue to hamper stability. Whenever that becomes stable, the price range is expected to flucuate by around $15 a barrel.

January gasoline on Globex also moved down with oil, as prices drooped 5 cents to finish at 92 cents a gallon. Heating oil followed suit, ending down by 7 cents to $1.37 a gallon.

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