The Oil Drum

70 comments on DrumBeat: October 21, 2006

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serengetiplains on October 21, 2006 - 10:34am

Curmudgeon, I think weak prices probably reflect but the seasonal fall trend to lower prices. I also think the degree of variation showing up this year---the degree of this particular year's appreciable price drop---probably reflects a spooked market, Counterintuitively, this drop probably thus signals market tightness.

I quickly scanned week-end prices for Canadian 40 (~WTI). Price drops at this time of year are as follows:

2000 71.6%
2001 63.7%
2002 82.0%
2003 83.5%
2004 77.0%
2005 82.5%
2006 72.0% (thus far)

2005's shallow drop probably reflects extra market tightness created by last year's hurricanes. If it does, one can see greater volatility emerging from 2003 onward, when oil prices truly began rising.

As to your questions, I think the answer to each, aside from imprecise generalizations, is "nobody knows."

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elwoodelmore on October 21, 2006 - 3:05pm

when we say weak prices arent we really talking about falling prices falling from an all time $ high of last summer $ 60 or $ 58 or $ 50 any well run oil company can virtually mint money at these prices (although the money they are making is $us) is our perception out of whack because prices were just too high during the summer ? despite the msm i am convinced that oil prices are subject to manipulation remember 1998 $ 10 oil ? (apologies to the punctuation police academy)

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HiD on October 24, 2006 - 5:41am

weaker prices are typical in sept/oct/nov. this is the lowest demand period as summer driving is over and winter heating demands are not here yet. Not to mention refiners do maintenance also dropping demand for crude.

The s/d balance is tight in summer but fairly sloppy this time of year. So the fear premium should wane. Not to mention those speculating on Katrina II have had their asses handed to them and had to sell (Hence the $2+ contango as Nov WTI expired). Longs are suffering. Looking like Dec will roll down to converge (Still excess supply). Won't be too long before the GSCI has to roll thousands of wti contracts forward. that should put a heavy feel on this market in the front.

If we have a mild December, OPEC is gonna have to cut seriously or accept much lower prices.