OPEC's holiday gift to us: Oil at $36 a barrel
Almost nobody got the peak in oil prices right in July.
Looks like it’s the same story on the way down.
Near-term crude futures crashed through $40 a barrel today, falling $3.84 to end at $36.22, the lowest since 2004.
Oil bulls, the Organization of the Petroleum Exporting Countries among them, thought $40 would hold. It did two weeks ago, when crude slid to $40.81 on Dec. 5, only to rebound to nearly $48 four trading sessions later.
This time, despite OPEC’s pledge Wednesday to cut another 2.2 million barrels of daily production, or 8% of the cartel's output, the oil market’s bears showed they’re still in control.
The selling today is partly a function of the expiration Friday of the January oil futures contract. Because of excess supply in the market, oil for current delivery is selling significantly below oil to be delivered in a month or more.
But Peter Beutel, head of energy consulting firm Cameron Hanover in New Canaan, Conn., thinks OPEC unwittingly struck another blow to market psychology Wednesday by emphasizing, at the top of its communique, that the supply cut was 4.2 million barrels.
Whoops -- they meant that was a cumulative 4.2 million, including 2 million barrels already offline since September.
Buyers initially came in on the 4.2-million number, then quickly fled when they realized the new cut was 2.2 million barrels, Beutel said. Oil ended down $3.54 a barrel Wednesday, setting the scene for more selling today.
Maybe we should consider this OPEC’s holiday gift: More relief at the gas pump.
Stephen Schork, head of energy research firm Schork Group in Villanova, Pa., thinks prices could fall to the mid-$20s by early next year, as demand continues to decline amid the global economy's slump.
What's more, he says, too many investors have been betting that $40 would mark the bottom, which means there’s room for psychology to get much more negative now that $40 is history.
"Markets trade on psychology as much as on fundamentals," he said. "No one believed that OPEC had control when prices were going up, and now no one believes they have control on the way down." That begets more selling and keeps potential buyers sidelined, he said.
Beutel said the final low price, whatever it turns out to be, may shock everyone, much the same as the peak of $145 a barrel in July was a shocker.
"Things that go up too much, come down too much," he said.
-- Tom Petruno
Photo: Better to wait to fill up? Prices at a Massachusetts gas station today. Credit: Elise Amendola / Associated Press