Up,Up and Down

Tuesday, September 16, 2008

Contrary to predictions that the price of oil would touch $200 per barrel by the end of the year, crude traded at below $100 for the first time in five months last week. On Monday, crude traded at around $97 per barrel. This is nearly a 30 per cent drop from a record high of $147 per barrel in July. The steep drop in oil prices in three months could be due to several reasons. One is the possibility of speculation which is not always easy to quantify. The US Commodity Futures Trading Commission, which has just released a much-anticipated report examining the activities of large index investors and so-called swap traders in the commodity futures markets including crude oil, has said as much. The problem is that the available data does not differentiate between speculative and legitimate hedge trading activities, it said. But the rapid speed with which oil prices have dropped probably indicates that speculators might now be trying to get rid of stocks before prices fall further. Two, the slowdown in the demand for oil, particularly in the US, caused by spiralling prices has had an effect. Finally, the prices have fallen because of the strength of the US dollar.


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