Oil prices plunged yesterday, as traders finally are starting to worry about dampened demand of the US, the world's biggest consumer, as their economy heads into recession. With Bear Stearns the investment bank going bankrupt and JPMorgan Chase taking over in return of $2 a share, it was is a positive indicator that the economy is going into more problems than it already was in, as credit woes are far from over. The temporarily withdraw of funs led oil prices to close yesterday at $105.68 per barrel shedding $4.53 after reaching a high of $111.80 per barrel and a low of $105.68 per barrel.
Crude is loosing its strength in the market as investors at last started selling fearing the US current economic performance. The recoil in crude markets is leaving consumers relieved and investors panic the upcoming slump in oil prices.
The Feds are initiating today's rate cut, which is going to be hostile as they try to hold the financial crisis in place and contain the spread. This upcoming interest rate cut will destruct the greenback value even more introducing investors to the crude market. Today, oil is still pulling back from high record levels it was trading among, opening the market at $106.15 per barrel reaching a high of $106.82 per barrel and a low of $105.92 per barrel.
A reason for the surging of oil prices in the past several months was due to the weakening of the greenback due to the Fed rate cuts, and fears of elevated inflation combined with sluggish growth where here cured fit as a hedge against pipeline pressures. The Feds are aiming at providing as much liquidity in the market as possible as they are alongside rate cuts pumping money and auctioning large amounts for primary dealers in hopes of containing the crisis. The rate cuts are hoped to as well encourage spending and rejuvenate the economy and bottom the housing sector, nevertheless that cycle take much time to be fruitful, for that the focus remains of the liquidity thirst and means of containing the spreading damage.
Seeing that crude is both bought and sold in dollars it's cheaper for foreign investors as they hold a stronger currency. Hopefully, traders soon will start keeping in mind the financial crisis in the US will hurt crude demand causing a drop in prices like we witnessed today and start leaving market resulting in declining oil prices.