Gas prices may soon be on the decline

Jennifer McClelland | RSS | Mon, Jun 22 2009 | 2 Comments

It looks like, with new economic data coming out, oil prices have begun to retreat from the year highs of around $72 a barrel.

Oil prices fell more than $2 a barrel today after the World Bank said that the global economy would shrink by nearly 3 percent this year, which is a much larger prediction than previously given. The March prediction was for a contraction of only 1.7%.

When the economy is weak, investors tend to pull out of the commodities market and that can drive the prices of commodities like oil down. July delivery for crude fell to $67.30 a barrel Monday afternoon in Europe after falling the previous trading day $1.82.

Investor optimism led to an eight month high of $73.23 a barrel earlier this month. Optimism surrounding the U.S. economy and predictions of growth toward the end of the year led investors to buy into the commodity market.

Victor Shum, an energy analyst who works for Purvin and Gertz in Singapore said, “Oil may have peaked in the short term. The market is over ripe for a correction. Eventually the laws of supply and demand will re-exert themselves.”

The World Bank was just full of bad news today as it also predicted global trade to drop by nearly 10 percent this year due to the deepening of the global recession.

I find it almost amusing how one little tid bit of news can so deeply effect the market. Remember last year when it seemed like any little bit of news that came out would drive the price of oil higher? It almost seemed like if someone looked at an oil pipeline then the price would jump 5-10%. Now, with the recession, if anyone mentions something about the economy shrinking or have a pessimistic outlook on the market, then the market falls.

I have said it in the past, and I think I should say it again. I believe that some of the market volatility in the past has been due to the amount of inexperienced traders in the market. A lot of investors are forgoing real investment advice and simply following what Jim Cramer or CNBC tells them to do.

The truth is, once that information is made public that investor won’t realize the returns that the news touted.

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The Dollar’s Decline

Tags: energy analyst, inexperienced traders, commodity market