Oil Hits 5-Month Low as Demand Shrinks

By: Zaki Bernoussi

September 5, 2008

Crude Oil has been dropping recently at a good pace. This drop has affected the economy in a way you may not have expected. “Weakness in the U.S. labor market sparked further concerns that demand for petroleum-based products was falling. The Labor Department announced Friday that the unemployment rate spiked to 6.1% in August, and employers trimmed jobs for the eighth straight month”. Because overall business activity in the states is slowing down the need for fuel through crude oil is no longer at such a high demand. Crude oil is now down to $105.13 a barrel.

The slipping economy has lowered demand severely. Weakening faster than expected, the economy will continue to lower demand and cause people to ignore this rapid decline because the overall price is still too high. “The Energy Information Administration reported Thursday that imports of crude were 200,000 barrels a day below the same four-week period last year”. The fundamental factors of the market are being challenged each day less people are out working to need oil based energy. "Traders are going to start targeting $100 for the price of oil soon," said Cordier.

The oil market will be paying close attention to any announcements of change in oil production quotas because the OPEC (Organization of the Petroleum Exporting Countries) will be meeting next Tuesday. If the OPEC would decide to cut production than the oil prices would likely increase.

Investors were worried that the threat of Hurricane Gustav and others brewing in the Atlantic didn’t rally the oil prices up some. The Gulf of Mexico shut down more than 80% of oil production. Traders should have bought oil before the Gustav hit, thus causing the prices to rise.

This article was a great follow up from last weeks. The fact that the oil prices were going down and that was scaring investors and economist was a complete jump from last weeks view. The focus of last week’s article was supply and demand and that demand must go down in order to solve our problems. Well this week the focus is that demand is going too far down. This either shows me that there can be two different ways to solve or cause a problem in our weak economy of today; or that nobody knows what their talking about and we’re totally screwed. It’s interesting that in just a week a mindset can change and a view of what is happening is totally altered.


http://money.cnn.com/2008/09/05/markets/oil/?postversion=2008090515