What is going on in the oil market?

  peter99co 17:37 27 Oct 08
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It can be said with confidence that the rate of falls will at least slow.

"If it carries on falling at this rate the price will be zero by Christmas,"

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  GANDALF <|:-)> 17:59 27 Oct 08

The oil price is a good example of micro-economics. It works like this..........generally, countries that produce oil have little else to export, so oil is very important for them as a foreign currency earner as their currencies are mainly worth de nada even as toilet paper.
With the dollars that they get for their oil they invest in office blocks, malls etc. which are there to provide dollar income so that they can use it to support their countries. With hindsight one could surmise that these were not terribly good investment vehicles
They need to keep the price of oil high so that they can get a good return on their investment. It costs eye-watering amounts to run a rig or explore for the oil.
They also need eye-watering amounts of currency to support their states.
They like to let it be known that oil is a dwindling reserve so this keeps the price at a reasonable (aka 'highly profitable') level.
They made the mistake of letting the bottom feeders on the stock markets play with the price of oil, making huge gambles so that it shot up which was good for the OPEC crew.....
but bad for businesses who take most of the oil production. Petrol is a by product and does not contribute much to their profits, so if the motorist does not buy petrol because of the price it is no great shakes.
In a recession, oil usage drops dramatically, so they now have huuuuuge reserves of oil which they cannot shift and is very expensive to hold in reservoirs.
Their investments are not looking very good especially as OPEC countries tend to rely on weekly currency shifts (some, like Saudi are almost daily)to feed their countries. They might own huge amounts of property and land but this is worthless unless you can profit from it or flog it quickly. Both these scenarios are grim in teh recession.

So OPEC are in between the Devil with all his impish servants and a very deep blue sea. If they raise the price in a recession they will sell naff all but if they do not raise the price their income is greatly eroded.
Using oil as a gambling commodity was never a particulary smart move in the long run especailly when the equity amoebas got their slimly teeth into it.

G

  Forum Editor 18:54 27 Oct 08

that there are many influencing factors in the oil market - it's a highly complex and volatile environment. First, demand for oil is slowing - no surprises there. Second, the US dollar has also started to strengthen, and prices are falling as a consequence of both those influences. We're now back to the barrel price that we had around a year ago, and it's entirely possible that prices will decline further.

By way of some background:

OECD oil demand has fallen by just under 2% this year, mainly because of falling consumption in the US - in September the US crude oil import total was the lowest it had been for many years. Next year's global consumption forecasts are also down - oil consumption will fall worldwide as the global economy slows its growth rate to around 3.3% or thereabouts from 3.8% for this year.

The OPEC producers are worried - so worried in fact that they're going to hold an emergency meeting of the OPEC conference in three weeks time to discuss strategies in the light of the worsening global economic situation.

  lofty29 19:06 27 Oct 08

they also have to remember what happened when they squeezed the west in the 70's by bucking the price of oil, and realise that they could cause a really bad scenario.

  peter99co 20:55 28 Oct 08

Earlier Mr Brown said major oil producers in the Middle East and Asia should contribute more to the International Monetary Fund's $250bn "bailout fund" to prevent the risk of the global downturn destabilising more countries.

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High oil prices lift BP's profits

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