Crude oil heads below $100 a barrel

When the rise in the price of a commodity is described as unsustainable it is probably because it cannot be sustained! The price of crude oil has continued its steep descent in recent days and some futures prices for oil have now dipped below $100 a barrel, presumably a psychologically important moment for the market.

The US dollar has been rebounding in value prompting some market speculators to unwind their holdings of gold and a range of hard and soft commodities and buy dollars instead. Perhaps the massive bail out of Freddie mac and Fannie Mae has been a factor behind this.

OPEC oil ministers meeting this week are coming under pressure to turn some of the taps off and lower their supply to the global oil market. OPEC supplies around 40 per cent of world supply and seeks to act as a swing producer to keep prices close to their target or desired level. Will they be happy with oil at $100 a barrel? The immediate answer seems to be no. Despite oil prices being much higher than they were just twelve months ago, OPEC has announced a cut in production designed to provide a floor to the recent fall in world prices.

The Telegraph today highlights the dividing line within the OPEC organisation:

“Opec’s meeting has became a battle between hardliners who want to maximise revenues by restricting supply and those who fear that the high price will choke off further demand.” It all boils down to elasticity of demand!