There is an old saying in commodities that low prices cure low prices and crude oil is currently at a multi-year low
Port St. Lucie, FL (PRWEB) February 4, 2009
"There is an old saying in commodities that low prices cure low prices and crude oil is currently at a multi-year low". When prices of any commodity are low the producers of that commodity typically cut back on production and innovation costs. In the case of crude oil the producers will tend to limit investments in exploration and production from more expensive sources of crude oil such as deep water deposits, shale and tar sands. This will likely persist until crude oil futures prices get high enough to warrant further investments. Visit http://www.tkfutures.com/crude_oil.htm to learn more.
Saudi Arabia relies upon higher crude oil futures prices to support various social programs for its citizens. Many analysts estimate that these social programs require $60 per barrel of crude oil prices or more to stay fully funded. Saudi Arabia has recently shut down one of its biggest refineries in an attempt to buoy crude oil futures prices.
OPEC members have twice recently agreed to cut crude oil production to increase crude oil futures prices. OPEC members control 40 percent of the world's crude oil supplies. These continued production cuts are expected by many analysts until crude oil prices recover back near the $80 dollar level. These production cuts may also help prop up crude oil futures prices over the near term.
Global tensions between oil rich countries can also affect crude oil futures prices. Israel was recently fighting with its Muslim neighbors and this can create problems for crude oil supplies. Iran controls a large amount of the world's oil deposits and has promised to wipe out Israel as soon as they have nuclear weapons. If Iran and Israel go to war the Straits of Hormuz may be blocked for a long period of time. If the straits are blocked crude oil prices may explode because twenty percent of the world's crude oil travels through that waterway to be dispersed to its end users. Any disruption of crude oil from point A to point B can affect crude oil futures prices. Crude oil futures prices may revisit the all time highs near $150 a barrel if fighting with Iran occurs. Visit http://www.tkfutures.com/research.htm to learn more.
The current global economic problems have forced many nations to cut interest rates which often weaken currency valuations. In the US record low rates and the printing of money should lead from the deflationary environment that is currently affecting the world to a hyper inflationary cycle. This should weaken the US Dollar some more and commodity prices are dollar denominated. If the US Dollar continues to weaken the commodity markets may be pushed higher. Energies and the precious metals are especially susceptible to a weakening US Dollar. Weak currencies and higher commodity prices may soon follow. Visit http://www.tkfutures.com/education.htm to learn more about other commodity markets.
The author of this article is a 15 year veteran of the crude oil futures and options markets and the president of T & K Futures and Options, Inc. Visit http://www.tkfutures.com/products.htm to learn more about other energy market investments. Crude oil futures and options investing carries substantial risk of loss and only risk capital should be used.