Oil Speculators are going to soak it to the democrats by leading to low oil prices
Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Large pension and commodities funds are the big traders and they’re seeking profits. They’ve sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.
That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.
But many of the conditions that drove investors to bid up oil prices are ebbing. Tensions over Israel, Lebanon and Nigeria are easing. The hurricane season has presented no threat so far to the Gulf of Mexico. The U.S. peak summer driving season is over, so gasoline demand is falling.
With fear of supply disruptions ebbing, oil prices began sliding. With oil inventories high, refiners that turn oil into gasoline are expected to cut production. As refiners cut production, oil companies increasingly risk getting stuck with excess oil supplies. There’s already anecdotal evidence of oil companies chartering tankers to store excess oil.
This was all part of Bush’s Master Plan
Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, Verleger said, it’s not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon.
Other experts won’t guess at a floor price, but they agree that a race to the bottom could break out.
“The market may test levels here that are too low to be sustained,” said Clay Seigle, an analyst at Cambridge Energy Research Associates, a consultancy in Boston.
“That takes six to nine months. If we don’t have a really cold winter here [creating a demand for oil], prices will fall. Literally, you don’t know where the floor is,” Verleger said. “In a market like this, if things start falling … prices could take you back to the 1999 levels. It has nothing to do with production.”