Drop in oil prices
With the news that the oil infrastructure of the Gulf Coast did not suffer serious damage at the hands of Hurricane Gustav, oil prices fell on Tuesday to its lowest level in five months to just over $ 100 a barrel.
The price of crude for delivery in October fell to $ 105.46 during the early hours of Tuesday, its lowest level since April, before finally losing $ 5.75 and closed at $ 109.71 in New York Mercantile Exchange. That level is nearly 30 percent less than the peak of $ 147 a barrel in July.
The last time oil dropped from $ 100 a barrel, the week of 14 to 20 March, the national average price of gallon of regular gasoline was $ 3.27. The AAA reported on Tuesday that today the average is $ 3.68, an increase of 90 cents compared with a year ago.
For now, all signs point to further price reductions.
"The demand remains weak'', said James Crandell, oil analyst for Lehman Brothers investment bank Wall Street that maintains a position contrary to predict the low oil prices.
Lehman expects the average crude price of $ 105 a barrel between October and December, and $ 100 or less at the beginning of 2009, on the basis that the weak demand in the U.S. now remains Asia and Europe.
"In Europe the situation has deteriorated economic and central banks have changed their tone''said Crandell, noting that inflation is not negative in Europe as slow growth, which reduces demand for crude." In terms of demand oil, we see that demand will remain weak in the U.S., something that has not improved at a time that prices have fallen.''
Another factor, more difficult to quantify, is the weakness in demand for crude and refined products in China, whose consumption statistics are considered unreliable long.
Analysts also believe that China accumulated inventories of gasoline and diesel fuel in the face of the Olympic Games last month.
"It is clear that they were accumulating inventory. Now not only will not accrue more, but try to reduce that inventory''said Crandell, meaning that the Chinese would use their inventory of crude oil rather than buy on the world market.
Other oil analysts believe that falling prices reflects the correction of a speculative bubble and suggest that the price will fall more in the future.
"Despite the recent correction, we believe that oil prices are still inflated and that the figures did not reflect fundamental sector'', wrote Daniel Katzenberg and Fadel Gheit, oil analyst for Oppenheimer & Co.., A signature investment management New York.
In a report issued on Tuesday, the two experts suggested that the recent hostilities in the Caspian Sea region, rich in oil, should have reversed the downward trend in prices if the global supply was indeed limited.
"The Russian invasion of Georgia and Hurricane Gustav have failed to halt the decline in the price of oil, which proves that they are inflated''and Katzenberg Gheit said, adding that''unless there is a serious disruption of supply, we think that the price of oil and touched its peak.''
Virtually the entire oil sector of the Gulf Coast was arrested while energy companies began to assess damage to the maritime platforms and pipelines, according to the Minerals Management Service of the United States. On Tuesday it was too early to say when it would resume activities, although some oil companies were preparing to bring its employees back to the platforms as soon as today.
The extraction facilities could resume its operations in one or two days, while the refineries could take from two to four days. In 2005, hurricanes Katrina and Rita disable the maritime oil infrastructure in the region for several weeks.
"Unlike three years ago, it seems that things normalised quickly''said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.
On Tuesday, another factor influencing oil prices was the strengthening of the dollar against the euro, which encouraged investors who bought oil as protection against inflation.
However, oil prices may increase if the dollar weakens again, or if countries cut oil production to keep prices high, as some analysts have speculated.
OPEC is scheduled to meet on September 9 in Vienna and has indicated that it can take action to defend the level of $ 100 a barrel.
