And Then They Remembered …… Oil Prices

Oil prices have been swinging lately.  I thought I’d take a moment to comment on this.  As discussed a few times before, oil pricing is tricky.  Yes, it is a supply and demand price, but, it also is an anticipated supply and demand pricing.  Worse, it moves at the whims of some very skittish people with a horrible herd mentality. 

So, we see this in consecutive days ……

Oil jumps above $94 a barrel as supplies fall

Oil prices rose Wednesday, sending U.S. crude above $94 a barrel for the first time in two weeks.

Crude oil for February delivery rose $1.58, or 1.7 percent, to $94.17 a barrel in New York. It’s up 2.6 percent the past two days.

A key reason for the higher price was a big drop in supplies. The U.S. government reported that oil supplies fell by 7.7 million barrels last week, more than analysts expected.

Now, that’s US oil, not Brent.  So, oil takes a sizable jump because we actually have less supplies than what we anticipated.  In other words, people were saying to themselves ….”Oh snap!!!  The US is using more oil than we thought!!!  Oil’s worth more now!!!”  And so the prices rose. 

Now, one would expect that they would continue to rise after noting this increase of demand.  But, next, we see this ……

Oil prices ease after sharp gains

KUALA LUMPUR, Malaysia (AP) — Oil prices eased Thursday but remained above $94 a barrel after sharp gains a day earlier on improved demand in the U.S.

Benchmark U.S. crude oil for February delivery was down 8 cents at $94.09 a barrel at midafternoon Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract surged $1.58 to settle at $94.17 in New York on Wednesday.

Brent crude, used to set prices for international varieties of crude, was down 44 cents at $105.83.

Now, why did that happen?  Well, it’s because of anticipated supply and demand.  Now, the optimist in me could say that it’s because of all the new oil we’re pumping out of the ground.  But, as shown previously, we’re still not at the point to where our production can control pricing.  OPEC typically sets the target price of oil and then adjusts their production accordingly.  So, then, if world supply isn’t going to be moving much in the immediate future, what is it then which caused the prices to stop rising and drop a little? —— anticipated demand. 

Where does demand come from?  The US and the EU comprise over 1/3 of the world’s consumption.  What does that tell us about what the oil pricers think of our economic prospects this year?