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Page added on June 24, 2012
The free-fall in crude prices is unlikely to reverse course without significant signs that the world economy is improving.
Oil, like stocks and other risk assets, fell sharply Thursday as fears of slowing global growth gripped markets, which were also beset by speculation about pending bank downgrades and Europe’s sovereign crisis.
But the price of oil has a separate significance in that it is an important lever on the world economy, and its decline could help consumers.
Crude prices have fallen 30 percent from their March highs as oil production globally rose to a record level in May, according to the International Energy Agency.
The world is now pumping 91.1 million barrels per day, the most ever. OPEC production, at more than 31.5 million barrels in May, is also higher than normal.
“I think that we are seeing asset classes moving in response to expectations related to government policy in Europe and the U.S,” said Edward Morse, head of commodities research at Citigroup. “I think they are short-term moves that will not be very long in duration. That doesn’t mean there’s not plenty of bearish news in commodity markets, in general, and the oil market, in particular.”
West Texas intermediate plunged 3.5 percent Thursday, following government reports of ample supply and domestic production at a 13-year high. WTI finished $3.05 lower at $78.20 per barrel, the first close below $80 since October.
Brent, the international benchmark, fell to $89.23 per barrel, the lowest level in 18 months.
While Morse doesn’t expect oil to keep falling for long, he doesn’t expect it to get back to its year highs soon either.
“We think there’s no reason for a sustained price recovery for Brent above $100 or WTI above $85 through the second half of the year,” he said.
More at MSNBC