WEEKLY ENERGY REVIEW: Weak Fed Outlook Trumps OPEC Cut
Big drop in prices despite weak dollar and OPEC cuts.
Bryce Knorr
Published: Dec 17, 2008
Despite a falling dollar and bigger than expected production cuts from OPEC today, crude oil prices worked lower as prospects for weak demand remain in control of the market.
The energy cartel, meeting for the last time until March, approved another reduction in production of 2.2 million barrels a day, 10% more than trader anticipated. But with supplies still building in the U.S., the reductions weren't enough to keep crude from making new lows. January futures broke below $40 briefly below the close, off around $3.50 on the day, falling to their lowest level since mid-2004.
During the multi-year bull market in crude, a weaker dollar often meant stronger energy prices. The dollar is in free-fall this week, but the greenback's demise is having little effect on crude oil futures. Instead, traders looked at the reason for the dollar weakness — the Federal Reserve move to lower interest rates yesterday to near zero — as a sign of potential deflation stemming from the financial crisis.
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