5:36 am May 12, 2011, by Henry Unger
There is mounting evidence that highly volatile oil prices are retreating. Can gas prices be far behind?
Oil prices hovered near $98 a barrel Thursday in Asia as investors anticipate the likely end of an aggressive U.S. monetary stimulus, Associated Press reports.
That’s quite a decline from a 30-month high of almost $115 on May 2, AP reports.
The second round of a Federal Reserve program of buying Treasury bonds, known as quantitative easing, has helped boost the money supply and weaken the U.S. dollar, AP writes. That makes commodities such as oil more expensive here.
The bond buying program is scheduled to end next month.
“The major policy that has shaped oil prices is winding down,” Cameron Hanover said in a report. “As long as the Fed does not come up with a third round of quantitative easing, the major reason for oil price strength will be gone.”
A third round is unlikely now. In fact, Atlanta Fed President Dennis Lockhart told me that in a recent interview.
On the gas front, recent stories have quoted some analysts predicting a decline of as much as 50 cents a gallon over the next few months.
The Energy Information Administration said Wednesday that U.S. gasoline demand dropped 2.4 percent last week — the largest drop in seven consecutive weeks of declines, AP reports. Meanwhile, oil supplies grew last week by 3.8 million barrels — more than twice as much as what analysts expected, AP writes.
“The world economy is clearly slowing,” said Capital Economics in a report. “Rather than being in the early stages of a super-cycle, the prices of many industrial and agricultural commodities seem more likely to be forming bubbles which are set to burst.”
- Henry Unger, The Biz Beat
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