Crude Oil: Are we headed to inflated 2008 levels?

Market Pulse: Mar. 1, 2011

The April 2011 WTI Crude oil contract opened last week at $90.04 and closed the week at $97.88. Crude hit a high last week of $103.41. With record supplies of crude in the United States why are we paying so much? Is it the fear of an oil stoppage from Libya? Actually Libya makes up only 5% of OPEC’s production. Saudi Arabia already said they would make up the difference, so where is the problem. Was the reported threat of the Suez Canal getting shut down real or simply uninformed speculation?

As oil rose to $147 per barrel in 2008, Americans were being told that the earth would run out of oil soon, peak oil. So exactly how did oil drop below $40? While demand may have dropped, did it drop so much to cause over $100 drop in price? Guess when OPEC’s production was at its highest? See the chart below. Oil companies at the time were reporting record quarterly earnings. Now there is another crisis in the Middle East. Time to push oil up as high as possible. Take a good look at the weekly chart below and you will see how the big money is trading this market. Oil companies (hedgers-commercials) in the oil market are at a 52-week net short low of -258,897 contracts.

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