I’m starting to think that Oil Speculators (commodity futures broker) were indeed the culprits in Oil’s meteoric rise. Look at the price of gas now in a recession. In a time before the credit crunch, investors had access to credit (or known as “Other People’s Money”) to help drive the price of oil up. Now with the credit crunch, financial institutions are cautious in lending out money so there is no financial fuel to boost the price of oil.
Analysts explain that its because of the contraction of the economy that stifles demand. But when you think about it, the main driver of oil demand are the car users. Despite the recession, people will still drive cars. Yeah it might go down a little, but I don’t think that it will be enough to cause the price of oil to go down that much.
Despite the news that OPEC will cut its production, the announcement will cause the price of oil to go up for a few days then trickle back down. A Knee Jerk reaction to the truth that Oil producers will still have to produce oil because they have to sell oil to earn a living. So oil producers can only cut production by as much otherwise they will also go broke by not selling oil.
Category: Oil, Oil Price
