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