Oil below $35

[sweeps]

Who would've imagined this 6 months ago.

[maat55]

I'm wondering why gas here has gone up from 1.37 to 1.69 with oil as low or lower than it was at 1.37.

[kork13]

I'm wondering why gas here has gone up from 1.37 to 1.69 with oil as low or lower than it was at 1.37.

Oil and gas prices are not directly related. Obviously, they're closely tied together, but I know that many companies are attempting to recover losses from last summer. Also, there is somewhat of a lag between an invcrease or decrease in oil prices and seeing that change in gas prices. It takes between a few days to a couple weeks (depending on how significant the change is) for companies to adjust their fuel prices.

[maat55]

Oil and gas prices are not directly related. Obviously, they're closely tied together, but I know that many companies are attempting to recover losses from last summer. Also, there is somewhat of a lag between an invcrease or decrease in oil prices and seeing that change in gas prices. It takes between a few days to a couple weeks (depending on how significant the change is) for companies to adjust their fuel prices.

I'm sure the little spike we had recently caused this, I'm hoping the quick spike downward will show up soon.

[GREENBACK]

I paid 1.96 today so the above is obviously true.

[humandraydel]

So is it true that speculators were at fault for the runup? I don't see how demand could have fallen THAT much. Where is Scanner and his 33% oil portfolio??

[banditfist]

Speculators had very little to do with the run up. In dealing with commodities, a speculator is buying futures contracts. But, when the time comes for delivery of the commodity, the speculator can only do one thing.....sell the contract (now the front month contract) at whatever the market price is.
Now, you did have some financial companies like the IBs that have holding companies with storage capacity. They might have had some affect.

[sweeps]

banditfist: There are absolutely no fundamental market forces that would justify the price of a barrel of oil going up to $150/bbl and then dropping below $35/bbl in 6 months. This was like all bubbles. Investors think the price can go nowhere but up, so they keep bidding higher and higher until an event makes them realize the emperor is wearing no clothes.

[Broken Arrow]

Well, regardless of the reasoning, the contraction is nothing short of breath-taking.... And the crazy part is that it might contract just a bit more, depending on the continued state of the economy, before it starts to level off.

[feh]

banditfist: There are absolutely no fundamental market forces that would justify the price of a barrel of oil going up to $150/bbl and then dropping below $35/bbl in 6 months. This was like all bubbles. Investors think the price can go nowhere but up, so they keep bidding higher and higher until an event makes them realize the emperor is wearing no clothes.

+1

I may have this number wrong, as I'm working from memory, but I read that something like only 1 out of every 25 barrels of oil purchased last summer was for actual delivery.

Another market that needs regulation.

[zetta]

Does oil have a very inelastic demand curve? I vaguely remember from econ 101 (many many years ago) that food had a very inelastic demand curve. What this meant was that the overall amount of food purchased was pretty steady regardless of whether the price was low or high (you've gotta eat, but can only eat so much). As a result, the price would vary significantly and quickly according to whether the supply went up or down. You see this today, where corn is being grown for ethanol instead of food. The supply has gone down (being diverted to ethanol) and food prices quickly went up around the world.

So have there been significant contractions and expansions in the supply of oil in the last couple of years?

[red92s]

Interesting. The price of milk hasn't dropped back down after going up due to increased transport costs.

[sweeps]

Interesting. The price of milk hasn't dropped back down after going up due to increased transport costs.

Nor has my son's preschool reduced/eliminated their 3% "energy surcharge".

[Broken Arrow]

That's a great question Zetta, and I wish I knew what the answer is....

Within the confines of a casual conversation over the internet, I suspect that oil has a much more elastic demand curve than corn.

Really, the only way for food staples to decrease in demand is for the world to have less and less people on it. That's not really going to happen, at least not quickly.

Oil, on the other hand, is dependent on the demands for finished goods and services, and we are seeing a world-wide contraction there. So, less demand for goods and services, less demand for oil to produce said goods and services. (Oil is simply following the Piper, but is not the Piper himself).

Another difference between corn and oil commodity is the supply source. We have vast quantities of corn grown here domestically, but most of our oil are dependent on foreign sources. In other words, we can and do control the price of corn, but not oil, and I would think that has some effect on the demand curve as well.

[Bernz]

I still believe that oil price will go up to around $60 before the year end and probably stay at $60 price range for over 6 months. Just my 2 cents