From Deseret News archives:
Oil tumbles below $38 on eve of US earnings season
The strained economy outweighed factors that would normally boost the market — Mideast tensions, signs that OPEC was implementing large-scale production cuts, the ongoing Gazprom-Ukraine gas dispute and a winter season expected to deliver the coldest weather in a decade.
"It's amazing what the market's ignoring," said Phil Flynn, an analyst at Alaron Trading Corp. "That really tells you the story of how bearish this is."
Light, sweet crude for February delivery fell 8 percent, or $3.24, to settle at $37.59 a barrel on the New York Mercantile Exchange.
After 10 straight days in which prices rose, the average cost for a gallon of retail gasoline finally fell overnight, catching up to crude markets that began to give way a week ago.
"Clearly, the focus this morning is back on the macroeconomics, and the concern that the demand for oil is just not going to be there any time soon, and there's going to be plenty of oil out there," Flynn said.
The Department of Energy last week reported bigger than expected inventories of oil, natural gas and gasoline, suggesting demand for energy continues to erode.
Traders are buying crude and putting into storage in hopes that it will be worth more at a later date. Oil tankers are being leased at sea. Storage space for crude became very hard to find at a key delivery point when the January contract expired a few weeks ago as unwanted oil flooded the market.
The contract price spread is creating an enormous incentive to build inventory, said oil trader and analyst Stephen Schork.
"Little wonder then why overall crude oil supplies have since jumped to a 35-week high," Schork wrote in his daily publication, The Schork Report.
The Organization of Petroleum Exporting Countries, in an attempt to boost prices, has announced production cuts of 4.2 million barrels per day since September with the latest cuts going into effect at the beginning of the year.
Michael Lynch, president of Strategic Energy & Economic Research, said it takes four to six weeks for oil to transit on the market, so any bump from the latest cuts likely won't be felt until mid- to late-February.
"They will take effect, but not yet," Lynch said.
Demand for crude continues to be weak.
The nation's largest manufacturers have slashed spending on fuel and last week, aluminum producer Alcoa said it was cutting 13,500 jobs and making deep production cuts.
