August 25, 2004

HOW LOW IS ITS NATURAL FLOOR?:

Oil Prices Fall for 3rd Day as Fears Ease (JAD MOUAWAD, 8/25/04, NY Times)

Oil prices fell for a third day on Tuesday, retreating from the record highs of near $50 a barrel set last week, as exports from Iraq resumed and traders worried less about supply shortages.

In New York, light low-sulfur crude for October delivery fell 84 cents, to $45.21 a barrel, on Tuesday. On Friday, the last day for trading September contracts, the price briefly hit $49.40 a barrel on the New York Mercantile Exchange before falling to $48.70.

Oil prices remain about a third higher than they were in July, run up by a succession of geopolitical threats to supply - renewed fighting in Iraq, legal squabbling in Russia and political infighting in Venezuela. Most oil-producing countries are pumping all they can, leaving the market little capacity to adjust if a big producer halts exports.

Events in Iraq have dominated trading on the oil markets this month. Prices rose when Iraqi exports were halved, then fell this week on reports that exports had resumed in the north of the country and returned to normal in the south.

"There's a lot of politics in the price, a lot of expectations of the worst," said Mehdi Varzi, senior energy consultant at Dresdner Kleinwort Wasserstein in London.


Since the price hikes have been almost entirely psychological it could fall a long way once it starts down.

Posted by Orrin Judd at August 25, 2004 12:01 AM
Comments

BusinessWeek had an article the other day saying the price would be about $30 based solely on supply and demand, the rest is pyschological. We'll find out today if the Russia airliner thing spooks the markets or not. Otherwise I still think, barring a major event in the Middle East, oil will be back down below $40 before too long.

Posted by: AWW at August 25, 2004 8:17 AM

NPR had a long story today about how oil production is at or near its historic peak (peaking as eary as next year or as long as 40 years from now), and so we've got to swithch to a non-petroleum economy on an emergency basis.

Obviously, the price is about to plummit.

Posted by: David Cohen at August 25, 2004 8:52 AM

Ever since the first Earth Day back in 1970, oil production has always been "at or near its historic peak" and we've always "GOT TO SWITCH TO A NON-PETROLEUM ECONOMY ON AN EMERGENCY BASIS!!!!"

Just give it a number and stick it in the pile with all the other Important Crises We Absolutely Have To Address By Yesterday At The Latest Or It's The End Of The World!!!!! -- I think the numbers are up to five or six digits by now...

Posted by: Ken at August 25, 2004 12:21 PM

OJ, what makes you think that psychology can be ignored in the marketplace?

Posted by: Robert Duquette at August 25, 2004 12:27 PM

Robert:

Not ignored, just not listened to. Reality always intrudes on delusion in the long run.

Posted by: oj at August 25, 2004 12:35 PM

Be careful what you don't listen to.

Posted by: Robert Duquette at August 25, 2004 2:16 PM

OJ:

As a wise economist once said, "Yes, but in the long run we'll all be dead."

Posted by: mike earl at August 25, 2004 10:45 PM
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