| Oil price rebounds on Thursday October 5th, 2006 on | | | | temper down speculative bet on oil, natural gas for |
| the news that OPEC will cut 1 Million barrels per day | | | | quite some time. We feel that those speculative bet |
| production effective immediately. Saudi Arabia, the | | | | has helped prop up oil price in recent past. Further, the |
| largest OPEC oil producer, will reduce its output by | | | | Amaranth blow out clearly shows that commodity |
| 300,000 barrels per day. Will this production cut help oil | | | | price has many speculative excess that can burst |
| price? OPEC members certainly hope so.In the short | | | | anytime.Seventh, natural gas price and other energy |
| to medium term, I feel that it is a futile effort. For | | | | sources has declined sharply. Energy price will |
| starters, after a nearly harmless hurricane season | | | | generally go hand in hand. If natural gas price has |
| over the summer, winter is predicted to be warmer | | | | dropped by more than 60% while oil price dropped |
| this year. As a result, energy consumption is expected | | | | merely 25%, it brings us two possibilities. Either natural |
| to be less burdening.Secondly, the US crude distillate | | | | gas price will rise while oil stays constant, or natural |
| stocks rose by 3.3 Million barrels last week. That | | | | gas price will stay constant while oil price will drop. With |
| signals the buildup in inventory which is bearish for oil | | | | the action of OPEC members to hastily cut production |
| price going forward. Furthermore, the rise of oil price | | | | immediately, 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 oil | | | | locating 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 to | | | | deep Gulf waters that boost US's oil reserve by 50%. |
| help prop up oil price.Thirdly, the rise of oil price has | | | | Yes, you heard it right. 50% more. While it will need |
| triggered a new oil exploration that would otherwise will | | | | billions of dollars to extract the oil and distribute it, it |
| not be funded. This project will bear fruit after five to | | | | shows that high price of oil will stimulate more |
| ten years. It is expected that the first batch of this | | | | exploration and deep drilling. Therefore, oil price cannot |
| new project will come online within the next one or | | | | rise indefinitely.Ninth, OPEC members are as addicted |
| two years. To recover the huge capital expenditure, it | | | | to oil as we are to our SUV. They need the oil money. |
| will be best for this new oil production field to keep | | | | Who would oversee that OPEC members reallly abide |
| producing oil. That will put pressure on oil price | | | | by 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 scale | | | | black market. While price has dropped over the last |
| down speculations which we believe has contributed | | | | two month, oil price by historical standards is still quite |
| significantly to the rise of oil futures. When you can get | | | | high.Tenth, one of the culprit for high oil price is China, |
| 5.25% by doing nothing, you would be inclined to not | | | | where 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 9 | | | | grown in the double digit each year way before oil |
| to 12 months ahead. The Federal Reserve started | | | | price 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 be | | | | hosting the Olympics on 2008. It built up its |
| felt around one year from now.Fifth, housing market in | | | | infrastructure 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 expectation | | | | complete and commodity demand will slacken in the |
| in the midst of severe slowdown in some areas. There | | | | next year, including oil.In the long run, as oil is in limited |
| are some bold predictions that forecast a double digit | | | | supply, its price should rise. However, in the short to |
| decline in home price until 2009, however, even the | | | | medium term, oil price may have taken a breather due |
| most optimistic forecast still foresees a modest decline | | | | to 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 gas | | | | oil, at least for the next twelve months or so.Novice |
| blown out by Amaranth hedge fund, showed how | | | | Investing is the online investing guide for beginners. You |
| dangerous speculating in commodity market is. This will | | | | can also submit investing articles here. |