Demand Trumps Distractions with Oil
By Investment U on January 13, 2009 | More Posts By Investment U | Author's Website
It’s become apparent that Israel’s land war and Russia’s childish power plays aren’t driving gas prices up. In fact, the price of crude sank 6% to $38.00 a barrel this morning.
Demand destruction from the global recession has been able to trump the “saber rattlers” around the world trying to drive up prices. Neither can overcome the fact that U.S. crude inventories are at record highs. Supplies have been on a steady increase since fall and have been piling up in storage containers and ships around the world.
Stock prices of major gas producers have been volatile, but stable since October - when retail gas prices really started moving down. Producers Exxon Mobil (XOM), Chevron (CVX), BP (BP), Royal Dutch Shell (RDS-A) and ConocoPhillips (COP) have all traded close to the S&P 500 Index (^GSPC).
The interesting thing is that gas supplies were large and stable during last summer’s price increases. It stands to reason that if the price of crude can be traded away from the demand once, it can happen again.
We predicted the price of crude could reach $20 a barrel late last year. But it wouldn’t be too far-fetched to suppose prices take an alternative tack after hitting a bottom. And a spike could be profitable for gas companies.
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