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Oil Slides Back Toward $74

21 December 2009 - News - Neil Kokemuller

As temperatures plummet with the winter months in many parts of the US, some speculators appear to be expecting increased crude demand to result. Benchmark crude oil prices were up $1.22 to $73.87 in early Friday (December 18) morning trade on the New York Mercantile Exchange.

The Organization of Petroleum Exporting Countries (OPEC) meets next week in Angola. It is widely expected that the organization will keep its crude production constant, in line with comments from OPEC leaders that the world's predominant oil producing cartel prefers that oil prices remain above $70 per barrel.

Increased demand combined with similar or less supply would obviously create a natural supply and demand effect, driving prices higher. A major question that still remains is how high demand will go. Cold weather is typically a given in the mid and northern US regions, causing higher demand for petroleum-based products. Unseasonably cold weather on the East Coast to start winter has enhanced general interest. If businesses began to expand in the coming weeks and if more vehicles take to the roads, fuel demand might help out as well.

Most top analysts appear resigned to the reality that oil is likely to stick in a trading range of around $70-$80 for the remainder of 2009 and into early 2010. There are simply too many dynamics that are playing with and against each other, and that are generally influx without further clarification.

The ongoing decisions by OPEC regarding its production output along with reports on crude inventory levels in the US, which have been at all time high levels for much of the year, are keys. The general state of the US and global economies are obviously important as well. A better economy drives more business, travel, and oil-based products demand.

There have been signs of slightly higher demand in a variety of industries that are reliant on crude oil. Heating oil and diesel are among products that have seen higher demand with the colder weather.

The development of the US economy and the movement in the US dollar is another important variable. The dollar has been near three month highs of late, helping push oil down closer to $70 than $80. However, a late week push by both the Euro and the Pound have contributed to the slight gains in oil as well.

 


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