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The Fear Factor Is Back For Oil

While fundamentals suggest lower oil…

Darrell Delamaide

Darrell Delamaide

Darrell Delamaide is a writer, editor and journalist with more than 30 years' experience. He is the author of three books and has written for…

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Crude Oil Prices Fall Below $80 Again as Officials Anticipate Slower Growth

Oil Market Summary for 08/09/2010 to 08/13/2010

Crude oil prices slumped below $80 a barrel again this week as the Federal Reserve and other official forecasters took a dimmer view of the economic recovery.

Friday’s closing price for the benchmark West Texas Intermediate futures contract of $75.39 a barrel marked a retreat from the contract’s short-lived foray outside the $70 to $80 a barrel range it has been trapped in for months. Prices fell nearly 7% from last Friday’s close of $80.70 a barrel.

The Federal Open Market Committee, the policy-making body for the Fed, said Tuesday it will keep interest rates low for “an extended period” amid signs that the recovery is slowing.

Citing recent economic data as evidence, the FOMC concluded that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

Worries about the recovery and the possibility of a double-dip recession hit equities and commodities markets alike in the wake of the Fed statement. The Dow Jones Industrial Average lost nearly 4% on the week, closing at 10,303.

The Fed itself did not adopt any new monetary stimulus, but in addition to keeping interest rates low, it will reinvest the proceeds from maturing mortgage-backed securities into long-term Treasuries rather than allow its balance sheet to shrink from its high levels during the financial crisis. The central bank also noted it has a number of other tools to use if necessary to stimulate the economy.

Global market participants also worried about a slowing of Chinese economy as authorities in that country try to dampen demand and prevent it from overheating. Import increases lagged export growth in the latest month, indicating a drop-off in domestic demand.

The International Energy Agency on Wednesday revised its estimate for this year’s oil demand slightly upward, but also warned of increased downward risk if the economy falters.

OPEC sounded a similar note on Friday, raising its forecast for world oil demand this year a tick, but warning that a phasing out of fiscal stimulus could dampen demand in the second half of the year.

By. Darrell Delamaide for OilPrice.com




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