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Thursday, July 16, 2009

So, where are prices going from here?
It's a nice summer morning here in St. John's, especially nicer after hearing the news that fuel prices are down; and a lot of questions from people asking if the downwards trend will continue...
Here's hoping! The evidence is certainly pointing towards "steady as she goes" and also "down" in the best of scenarios. If I were an oil trader, I think I would quit, let's put it that way.
Right now, the news is not good if you are an oil man. With waning consumer demand for gasoline and another build in inventories this week, it's hard to wonder why there should be any price increase in the foreseeable future. The fact that North American drivers just aren't buying to the same degree that a lower price should dictate, should be a forewarning to most of the change that drivers are facing. Consumers are not cutting back on consumption because of price, they are doing it out of necessity that the economic situation is bringing to them. Prices for gasoline are now about 35 per cent lower than the same time period last year, yet demand, is recorded at a mere 6/10ths of a percentage point above last years numbers.
Consumers can't spend because of the uncertainty of the ongoing economic recession. I like to call this "enforced conservation" a new economic term you'll soon be hearing about in your favorite business news network or late night TV host!
Enter the ongoing prospect of an oil glut in the markets. While the data from the US Energy Information Administration showed a draw on US inventory, the same still shows a huge 47 million barrel surplus in stock in holding tanks that should be heavily drawn upon during summer months of the past. The word from OPEC is that they produced some 57,000 barrels per day more than their own self-imposed quotas during the month of June and this is only now coming into the North American inventory grid. Talks are abounding of $45 a barrel US oil in August, not heard for a long time during peak summer driving season. Some experts like Philip Verlager are even predicting $20 US a barrel oil and an imminent collapse in prices this winter at best.
Also adding to the downwards pressure on gasoline pricing in the coming weeks is a pick-up in US refinery capacity, up again this week to almost 88 per cent. With added capacity and waning demand, why would I as a trader even bother investing? There's no return here.
The only possibility of upwards pressure on oil will have to come from here but, right now, it's showing just like a St. John's July 16th morning : Nothing but clear skies!
The trend of falling prices might be around for a while. The news from the Alberta oil fields won't be all good if that's the case.
Hope this answers a few questions out there?
Regards,
George

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