Oil sinks again, but market tries to draw line at $60 a barrel

The crude oil market looks as if it’s trying to make a stand at the $60-a-barrel level, raising questions about how much lower gasoline prices might go.

Near-term oil futures fell as low as $60.16 in early trading today, as gloom about the global economy triggered fresh selling in raw materials.

The price then bounced up to $63 by 11 a.m. PST, only to fall back again. Futures ended regular trading today at $60.77, down $4.53 from Wednesday -- and the lowest close since March 2007.

"I think if oil goes below $60, you’re going to see some good buying," said Nauman Barakat, senior vice president at Macquarie Futures USA in New York. Energy "demand destruction" from a likely U.S. recession "is already built into the oil market," he said.

What’s more, he expects airlines and other fuel users to rush in and buy oil futures if prices slide below $60. "I think users will be quite happy to step in and hedge at that price," Barakat said.

Crude has plunged 58% from its record high of $145.29 a barrel in July as the economy has crumbled and as many speculators have abandoned what had been a wild bull market in commodities.

Falling gasoline prices are the only good news many consumers have been able to take away from the deepening economic mess.

Rick Mueller, director of oil practice at Energy Security Analysis in Wakefield, Mass., said oil could fall into the $50s temporarily, but that he expected the Organization of Petroleum Exporting Countries to step up with more production cuts if that happened.

"I do think OPEC is going to strongly defend a $60 to $65 price floor," Mueller said.

But some analysts think the economic outlook is so grim, oil won’t hold at $60 for long.

"I think we’re going to $50 to $55," said Stephen Schork, an analyst and trader at the Schork Group in Villanova, Pa. "I think the economy is that bad."

As for airlines and other users that may want to hedge their bets by locking in current prices, their track record with hedging hasn’t been so hot, Schork said.

"If they’re buying at $60, it probably means we’re going to $40."

Photo credit: Justin Sullivan / Getty Images

Comments

[Mauricio Osorio]

I'm glad that oil prices are lower, but afraid that users will go back to their old ways of wasteful driving and Big SUVs if oil continues to fall. On reflection this fall in prices has quieted, albeit a bit, the hostility from Russia, Venezuela, Iran and others that peppered the headlines when oil was way up. If anything, this seesaw of pricing has highlighted where these countries were getting their money from, us. They are nothing without us and I don't want to support them. I for one will continue to conserve and advocate alternative energy.

[mr.bilko]

Let's just hope that declining oil prices continue to lead to declining gas prices. It doesn't always work out that way, particularily here in California where we use a different reformulated version of gasoline than most of the rest of the country, hence higher prices.

Declining oil/gas prices will soften the blow of this recession. Assuming that the average person drives 12,000 miles per year, an SUV/truck/van driver getting 12mpg at $4/gallon will save $2000 per year if gas goes to $2/gallon. A car driver getting 20mpg will save $1200 per year if gas drops from $4 to $2 per gallon. These savings exceed the $300 to $600 stimulus payments ($600 to $1200 for joint filers) sent out by the IRS earlier this year.

[OGP]

Well, an ENLIGHTENED government would put a TAX on oil to keep it at $100 a barrel. The extra money could be rebated to the poorest among us who could least afford the $100 price tag, making the move "revenue neutral".

Do we have such a government?

We shall have to wait and see.

[Jeremy]

I hope Obama follows through on his promise to lead America into Energy Independence. The high cost of gas this past year nearly destroyed our economy and damaged our society. Record numbers of homes and jobs have been lost as a direct result of the crunch paying for fuel put on families and businesses. We need to become energy independent and fast. Our economy can't keep on this way. yes, gas prices have fallen. But, OPEC just cut production by 1.5 MILLION barrels a day and vows to cut more soon if they don't get the prices back up. We have so much available to utilize such as solar, wind, elec plug in cars etc. America is paying out trillions in bail outs and stimulus checks that btw did NOTHING to stimulate our economy. Why not bail us out of our dependence on foreign oil. Renewable energy would create million of much needed jobs, provide clean cheap energy for the masses, and make us independent. Please check out Jeff Wilson's new book The Manhattan Project of 2009 if you desire to see our country become energy independent. I hope Obama does not let us down in this area!

[Charmy]

In my opinion, the oil companies cheated us for 2 years. What has happened to Ms. Pelosi's promise to recover our funds or stop all their tax breaks? The Arabs said there was never any shortage, period.

[martscan]

What happened to all those &#$@&% speculators? Could they possibly be speculating on the short side...and pushing prices lower than they should be?