Why the drop in prices?

[peaky]

Now, I realise that the answer to this is probably buried in another thread here somewhere, but can someone explain why prices, certainly of petrol, have dropped back so much? Around the time of Katrina we were up at 98.8p for diesel at the station over the road from me and prices were at one point rising every day. Suddenly, it all stopped and at the same station they are now down to 92.9p.

My understanding is that SA has apparently peaked in output of sweet light crude which is what everyone wants, tankers are full to capacity, GoM rigs are still damaged as are pipelines and refinieries. No enormous finds have suddenly come on stream and demand hasn't slackened much - though maybe the Americans junking their SUVs has made an impact At Katrina time the BBC had an oil news item pretty much every day. Now, if they have one it's to say, "Hey, prices have dropped again".

Are we in some weird calm before the storm? Wasssup? He asked innocently.

[clv101]

I think I read somewhere this week that the IEA were recommending an end the 2million barrels per day of crude and product shipment from EU to US. That might free up our market a bit... NYMEX crude is also well below $60 which might take a penny off compared to the $60+ we were are a few weeks ago.

[mikepepler]

Maybe it's the calm before the storm? I noticed that while oil and gasoline inventories in the US are rising like mad, they are drawing down heating oil, at exactly the point when they should be building it up for winter. The refineries still out of action are no doubt part of the problem. Also, there is still a lot of natural gas offline in the GOM, as well as oil.

As soon as we're out of this fortunate little window between the US driving season and the Northern hemisphere heating season, things might change...

[RevdTess]

I can suggest two reasons for fall:
1. Weather is much warmer than normal both in the US and EU. Sustained normal (ie cold) weather will probably see an end to the downward trend.
2. The market is impressed by the ability of the global oil infrastructure to smoothly deal with the hurricanes. Folks are a lot less nervous now than they were prior to Katrina/Rita/Wilma.

Not an exhaustive list.

[snow hope]

Give it 4 weeks.

[Adam Porter]

Hi
It's fairly complex but not so much. There is a significant amount of profit taking at year end and as crude was up at $70 plenty of people had profits to take. There is now however a record number of short positions open, 162k in fact. So plenty of people were aggressive in shorting the market and still are...but if those positions are covered that in itself could be a bullish force for pricing.

The price broke down past $59 today so it might test $56 now...its at $57.77 right now...on the other hand...

New data from China today said October imports were up 23% y-o-y...

If you fancy it at my gaff www.oilcast.com down the right hand side at the bottom are some recent pieces about this...

And no i wont say what i think will happen as i'm always wrong!

best
adam

[peaky]

There is now however a record number of short positions open, 162k in fact. So plenty of people were aggressive in shorting the market and still are...but if those positions are covered that in itself could be a bullish force for pricing.

Adam (or other knowledgeable person ), could you explain this as I'm not familiar with these terms and I don't understand it.

[Adam Porter]

Sorry bout that...

Basically traders bet on the price of oil. They `go long` (increase in prices) or they `go short` (decrease in prices). Same in any financial market really.

So it is possible to see the amount of short bets (aka short `positions` or `puts`) as that kind of data is generally given out by the indexes, (not always but...).

So right now there are record number of `shorts` on the NYMEX. Basically 162,000 of them. They are outweighing those who have bet high/gone long.

In itself that encourages selling. That lowers the price. Often much of this is done by software. Technical data (ie graphs plotted to see if one can tell what is going to happen) also drives buying and selling.

Profit taking means that when the price hit $70 lots of traders went `wahey!!` and sold. Others did not and are still selling, some have come back in and are betting on continuing falls.

The fact that there is a record number of `shorts` means it is a pretty aggressive fall and lots of people want to get in on the deal. This keeps driving prices lower...in this case.

But if those short bets are `covered` in other words balanced out by those betting high (`hmmm ok i think its fallen as far as it will go`) then that could mean traders will start to cash in their chips (`close out`) and the price could rebound...

Its a little bit profit taking (or quite a lot), a little bit herd mentality, a little bit basic factors (warm weather, inventory releases) a little bit software/technically driven...

It is also year-end for traders. Year end = bonus time. So if you bet on a price fall when it was say $65 you are cashing in your chips or you are staying in to hope it falls further...eventually it will meet `resistance` (ie the point when traders dont think it will fall any more) and technical analysts say the next line will be around $56 - it might even get around there this afternooon...or it might not... If it breaks below $56 it could go all the way to $50...

[Adam Porter]

Fyi crude for December contract has broken below the 200 day average, that signals more falls. Very rare that happens.

This is actually quite a day/48 hrs...but hardly anyone notices...

If oil does fall through $56 it could easily get to $50...it's pretty amazing. On the other hand if it doesn't break $56...

[ridiculed]

Most peoples replies seem to be on the mark but the I believe the main reason is the Speculators on the Oil Market!

[peaky]

Thanks very much Adam - that makes things much clearer