Oil Prices Beginning to Decline

Yesterday oil fell as low as $132 a barrel, down 10% from the record high of 146 reached on July 11th. Softening economies are beginning to drive down demand and increase stockpiles.

Bloomberg reported that:

"``The inventory numbers are starting to reflect the bad macro-economic news,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Not only did we get a surprise build in crude- oil stocks, the products were also up nicely.''

Several other factors playing to the drop in prices are:

• The US agreeing to send a negotiator to Switzerland to meet with an Iranian counterpart. Any lessening of tension with Iran will help to reduce oil prices.
• Saudi Arabia increased output to 280,000 barrels a day.
• Chevron resumed deliveries from offshore platforms in Nigeria.
• Bush lifted a ban on offshore drilling.

I also expect that China will have to continue to pull back on its energy subsidies and charge more for gas. That would result in more demand destruction and decrease the global need for oil.

Supply and demand is starting to work to reverse the price of oil. I personally believe that we'll see much lower oil by the end of the year and still predict that oil will be under $100 by January 1.