Crude Prolongs Slide
Dec 18th, 2008 | By Doug Casey | Category: Financial NewsIn the energy market Wednesday, oil prices plummeted, with crude for January delivery closing at $40.06/barrel, down $3.54. January reformulated gasoline fell 3 cents, to $1.01/gallon.
Crude sold off despite OPEC members’ decision to slash production by 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day, effective January 1. That’s a drop of 2.2 million barrels from current levels, and it constitutes the cartel’s biggest production cut ever.
The market’s counterintuitive reaction “is, you said you’re going to cut [production], but we really don’t believe you,” said James Williams, of WTRG Economics. “Also, we are looking forward to the low spring demand season in a few months and even if they [OPEC] cut a full 2.2 million barrels, it is not going to be enough to balance the market by then.”
$25-30 a barrel is probably as low as oil prices could go unless the economic situation gets “much, much worse,” Williams said. “Could [oil] drop to $10? Yes, but it wouldn’t stay there for long, because at $10 per barrel, OPEC will get discipline,” he added.
In its weekly inventory report, the Energy Information Administration said crude supplies rose 500,000 barrels during the week ended December 12. Gasoline stocks climbed 1.3 million barrels and distillates were up 2.9 million barrels.
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