Great news for the consumers as oil is continuing to plunge due to profit taking. Investors started leaving the crude market on worries that prices have reached their peak rushing to lock in on profits, giving oil the support we saw for the decline in prices. As crude is known to be a hedge against the weak dollar and a hedge against inflation, prices of oil are dipping since the US dollar is appreciating against all major currencies.
Seeing that there is a clear sign of profit taking, prices are not yet affected by Saudi Arabia stating Sunday that it was planning to increase its oil production and refinery capacity by constructing wells and infrastructure. OPEC fears to increase its crude supplies as exists already dampened demand. The contract shed $0.70 last week Thursday closing at $101.84 per barrel reaching a high of $102.69 per barrel and a low of $98.65 per barrel.
While crude prices are continuing to follow a downwards trend, speculators closed their buying positions to avoid risk after global market turbulence. The major reason behind the severe dipping of prices was due to the Feds taking a less aggressive interest rate cut of 75 basis points which restored confidence to traders to enter the stock markets, driving them to shift their investments away from the crude market. Also, investors started worrying about the fall of Bear Stearns, the major investment bank, and feared worsened economic conditions. Today the market opened at $101.70 per barrel reaching a high of $101.70 with a low of $100.02 per barrel.
As the US economic growth will continue to stay in a recession, the dollar backed commodities will rise on the medium term as it is cheaper for foreign investors to trade as they hold a stronger currency. This will leave investors satisfied and consumers in panic as a future surge of crude prices on the medium term is still seen.