Oil prices continued their week-long free fall, closing just above $60 on the New York Mercantile Exchange Wednesday. After an EIA report revealed that distillate and gasoline inventories in the United States had climbed again this week, the crude market tumbled further.
Crude oil settled on the NYMEX Wednesday nearly $3 lower than yesterday's close, at $60.14 a barrel. This is more than a $10 drop since the year's high of near $73 in mid-June.
Contributing to the sell-off, the EIA reported today that both distillate and gasoline inventories had risen, despite the recent US holiday weekend.
"We had a rather neutral to fairly bearish EIA stocks report, especially in the products, where the distillates and gasoline inventories were really double expectations," said Mike Zarembski, a senior commodities analyst with optionsXpress in Chicago. "The combination of the rejection of the commodity markets, plus the EIA reports really caused oil to tumble."
The analyst believes that the commodity market is mirroring the decline in the stock market and that investors are wary to put their money in the pot at all.
"It was just more continuation of the sell-off that we've seen the past several sessions," explained Zarembski. "The stock market started to turn weaker lately, and that's gotten people in the selling mode, in the whole commodity complex as well; and today was no exception."
He believes that investors are going to wait to see if the US stimulus package actually has a positive effect on the economy.
"It seems like a lot of people are starting to say, ‘Enough is enough. Let's go to the sidelines here and wait this out the next few months,'" he concluded.
The New Floor
While hope existed a few weeks ago that oil might reach $75, the new price point for oil has dropped drastically. Seeing $60 so quickly in the decent, the new floor for oil may be even lower.
"I wouldn't be surprised if we hit just below $60, but I wouldn't be surprised if we get a little bit of a short-covering bounce below that," Zarembski predicted. "Because any time you move $10 or so in this oil market, it's due for a little bit of a correction even in the short-term."
Notwithstanding any major increase in demand, a true cut in production from OPEC, severe political tensions in the Middle East or a seasonal production interruption from a hurricane in the Gulf of Mexico, the price of oil should remain below $60 for the foreseeable future.
"I would say a run below $60 is going to find a little buying here, and we're going to have to wait and see if that's sustainable or not."
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