Oil Prices Plunge for Second Consecutive Day Yesterday
Oil prices headed in an unusual direction — down — for the second consecutive day on Tuesday, leaving energy experts to wonder whether the drop is the beginning of a lasting trend or just a brief pause before another surge.
Oil settled at $136.04 a barrel, a drop of $5.33, or 3.8 percent. Analysts said the immediate causes included the strengthening of the dollar in recent days and the apparent veering northward of Bertha, the first hurricane of the 2008 hurricane season, meaning it was likely to miss the oil and natural gas facilities in the Gulf of Mexico.
They also noted that President Mahmoud Ahmadinejad of Iran had dismissed the possibility that war with the United States and Israel was imminent in remarks to reporters in Kuala Lumpur, Malaysia, relieving worries that Iran might try to block oil shipments in the Strait of Hormuz.
The decline bolstered a rally in the stock market, with the Dow Jones industrial average rising 152.25 points, or 1.36 percent, to 11,384.21. The broader Standard & Poor’s 500-stock index ended up 1.71 percent, and the Nasdaq composite climbed 2.28 percent.
But even as a barrel of oil lost more than 6 percent of its value since the Fourth of July weekend, energy analysts warned that it was too soon to predict an outright collapse in prices. Some predicted that this was just one more in a series of pauses that has accompanied the volatile rise in oil prices from $60 last summer and just below $100 at the beginning of the year.
Others were just left bewildered.
Chip Johnson, the president and chief executive of Carrizo Oil and Gas, a Houston-based company, said he was “confused” by “such wild swings.” But he added: “I can’t see oil getting cheap again ever. It’s just too hard to find, and too many people want to use it.”
Any sustained decline in oil prices could help the consumer at a time when higher food and energy prices have forced many to cut back spending on other goods. It could also help the ailing automotive and airline industries, lower the trade deficit and strengthen the dollar. Prices for gold, silver, copper and corn also dropped on Tuesday.
But the factors bringing down oil prices over the last two days could be short-lived. Traders have been using oil as a hedge against the dollar in recent years, and there is no assurance the dollar will strengthen for long if the economy further weakens. Another hurricane could develop at any time, and the strongest normally come in August and September. Tensions in the Middle East, Nigeria and other oil-producing areas can always erupt to put pressure on tight reserves.
“I don’t think there has been any change in the overall direction of the oil market,” said Addison Armstrong, director of market research at Tradition Energy, an energy broker that deals with banks and hedge funds. “The bias is still clearly to the upside, with $150 firmly in the sights of traders.”