Ten Reasons For Lower Oil Price Ahead

Oil price rebounds on Thursday October 5th, 2006 ontemper down speculative bet on oil, natural gas for
the news that OPEC will cut 1 Million barrels per dayquite some time. We feel that those speculative bet
production effective immediately. Saudi Arabia, thehas helped prop up oil price in recent past. Further, the
largest OPEC oil producer, will reduce its output byAmaranth blow out clearly shows that commodity
300,000 barrels per day. Will this production cut help oilprice has many speculative excess that can burst
price? OPEC members certainly hope so.In the shortanytime.Seventh, natural gas price and other energy
to medium term, I feel that it is a futile effort. Forsources has declined sharply. Energy price will
starters, after a nearly harmless hurricane seasongenerally go hand in hand. If natural gas price has
over the summer, winter is predicted to be warmerdropped by more than 60% while oil price dropped
this year. As a result, energy consumption is expectedmerely 25%, it brings us two possibilities. Either natural
to be less burdening.Secondly, the US crude distillategas price will rise while oil stays constant, or natural
stocks rose by 3.3 Million barrels last week. Thatgas price will stay constant while oil price will drop. With
signals the buildup in inventory which is bearish for oilthe action of OPEC members to hastily cut production
price going forward. Furthermore, the rise of oil priceimmediately, we believe that it is the latter.Eighth,
this past year was accompanied with rising inventory,technologies has helped companies getting smarter in
which is puzzling. Therefore, it is about time that oillocating oil patch. On September 5th, 2006, Chevron
price declines, no matter what the inventory figure is.announced that it has successfully discovered oil in
That being said, it will take a lot of declining inventory todeep Gulf waters that boost US's oil reserve by 50%.
help prop up oil price.Thirdly, the rise of oil price hasYes, you heard it right. 50% more. While it will need
triggered a new oil exploration that would otherwise willbillions of dollars to extract the oil and distribute it, it
not be funded. This project will bear fruit after five toshows that high price of oil will stimulate more
ten years. It is expected that the first batch of thisexploration and deep drilling. Therefore, oil price cannot
new project will come online within the next one orrise indefinitely.Ninth, OPEC members are as addicted
two years. To recover the huge capital expenditure, itto oil as we are to our SUV. They need the oil money.
will be best for this new oil production field to keepWho would oversee that OPEC members reallly abide
producing oil. That will put pressure on oil priceby the production cut? In the past, some OPEC
further.Fourth, the federal fund interest rate is at 5.25%members will 'cheat' by overproducing and sell it on the
versus 1.00% several years ago. This would scaleblack market. While price has dropped over the last
down speculations which we believe has contributedtwo month, oil price by historical standards is still quite
significantly to the rise of oil futures. When you can gethigh.Tenth, one of the culprit for high oil price is China,
5.25% by doing nothing, you would be inclined to notwhere it has been gulping up oil for its rapid economic
borrow huge and simply put your money in the bank.growth. That may be true, but China's economy has
Furthermore, the effect of interest rate change is felt 9grown in the double digit each year way before oil
to 12 months ahead. The Federal Reserve startedprice gets this high. We believe that the recent
lifting its fed fund rate on June 30th 2004, until now.commodity sharp rise has anything to do with China
Therefore, the effect of 5.25% interest rate will still behosting the Olympics on 2008. It built up its
felt around one year from now.Fifth, housing market ininfrastructure ahead of the game and as 2007
the United States has slowed down considerably.approaches, I believe that the construction is almost
Home builders had reported declining profit expectationcomplete and commodity demand will slacken in the
in the midst of severe slowdown in some areas. Therenext year, including oil.In the long run, as oil is in limited
are some bold predictions that forecast a double digitsupply, its price should rise. However, in the short to
decline in home price until 2009, however, even themedium term, oil price may have taken a breather due
most optimistic forecast still foresees a modest declineto the ten reasons above. All these forces has made it
in home price. This is a picture of a slowing economy,extremely difficult for us to be in the bullish mode for
which will dampen demand for oil.Sixth, natural gasoil, at least for the next twelve months or so.Novice
blown out by Amaranth hedge fund, showed howInvesting is the online investing guide for beginners. You
dangerous speculating in commodity market is. This willcan also submit investing articles here.