January 22, 2009, 12:28 pm

Oil Prices: Bulging Inventories Whack Crude Oil’s

Tepid Recovery
Posted by Keith Johnson

So much for the idea of an economic turnaround that could send oil prices higher, as they
have done in recent days. Dismal U.S. crude oil inventory data released this morning sent
crude futures down more than 6%, scurrying toward $40 a barrel.

The inventory data showed a huge increase in U.S. crude stockpiles for the second
consecutive week—a 6.1 million barrel increase compared to market expectations of a
1.4 million barrel inventory build. That’s a pretty clear sign that a recovery in U.S. oil
demand is still on walkabout. Add that to equally grim U.S. housing numbers released
earlier Thursday, and oil bears were unleashed.

The question now is: What will OPEC do? The oil cartel has been putting a brave face on
the fact that its massive cuts in oil production have so far failed to return oil prices
anywhere near the cartel’s goal of $75 a barrel. OPEC president Chakib Khelil said
yesterday, “The cuts agreed are being implemented 100 percent. That’s why we’re seeing
prices leveling off, not weakening further.”

Mr. Khelil said Saudi Arabia put a number on its new goal of producing below its official
production quota: the world’s biggest oil exporter expects to pump 300,000 barrels below
its official quota by March.

Which is when OPEC is next slated to meet. After already shaving more than 4 million
barrels of oil off global markets, is there anything the cartel can still do in the short term
to reverse oil’s slide? And will the steps it takes just set the stage for an even bigger oil
rally later in the year?

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Comments
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If you want to lock in your gas price at today’s prices you can at Tomorrow’s Gas. You
buy the gas today and then redeem the gas when you need it. Cleary it works great if gas
prices go up like they did last summer, but not so much if they go down
http://www.tomorrowsgas.com

Anybody else tried it? What do you think?

Comment by Robert - January 22, 2009 at 1:09 pm

I don’t think there this is demand driven market. Its speculative market by US and Opec
both. Opec is trying to keep the price on lower side as if OPEC increase the price of
crude then it may appreciate the US dollars and ultimately effect opec countries inflation
will increase. To maintain the growth opec trying to keep the price in $35-45 range.
Price of Crude oil drop down $ 147 to & 35 in few months but the demand decreases only
around 10-20% only..
So what we say this speculative???

Comment by Vaibhav Maroo - January 22, 2009 at 1:46 pm

Where is $200 a barrell of oil that Goldman Sachs and Hedge Funds were trumpeting just
seven months ago? T. Boone Pickens is still saying that Oil will get back to $140 a barrell
next year. But, he has either some self interest in talking up the price or he is an old man
loosing his mind.

Comment by George - January 22, 2009 at 3:46 pm

Its the market place nothing more than that. 147 dollar a barrel for oil while nice on
paper, it was not sustainable. It was a bubble and it broke and now it’s moving to were
the market place can sustain the price, right now it looks like its going to be in the 35 to
45 dollar range, but that is a guess on my part. I don’t know what the price of a barrel of
crude is going to be in Feb let alone come July. The Saudis would love stable 70 a barrel,
but that is a pipe dream, 30 below that fig is were I would bank on and adjust my
spending accordingly. if it a better that that its just great and if it says at that level then we
can weather the down turn and as the world economy recovers so will demand and we
can do better price wise. Either way its not going to be good for Nations like Iran. And
that maybe worth the short term pain we are all going thru at is point in time.

Comment by George M. Semel - January 22, 2009 at 4:24 pm

I’m betting crude will stay at 35 to 45 as well,but why isn’t the price at the pumps
reflecting the same drop, when it was 35/45 in the late 90’s early 00 the price at the pump
was definetly lower!!
The latest scam is they need to keep prices higher to pay share holders and the CEO’s
extravegant wages+++

Comment by Brian - January 22, 2009 at 5:11 pm

If the Dems and envir-nazis get there way, $147/bbl oil will be the standards, perhaps
even higher.
.
Carbon tax and cap & trade will increase the cost of energy, which will be passed on
directly to the consumer.
.
The dems and enviro-nazis are also against drilling in the US and offshore, which will
hurt big time once demand comes back in the next year or so.
.
Hope this helps.

Comment by get real - January 22, 2009 at 6:22 pm

Chekib Khelil is no longer OPEC president. Angola took over the rotating OPEC
presidency on Jan 1.

Awful strange that Khelil would speak for Riyadh, no?

Also, oil (front month CL) recovered and closed up $0.12/b today.

Comment by Freude Bud - January 22, 2009 at 8:53 pm