Not long ago, it was the perfect storm driving up the price of oil. Today, there's a new reality in the market and it's the fear that the global economy is raining on super high oil prices.Oil on the NYMEX was down more than $4 in afternoon trading and was closing in on the $90 per barrel level.The all time high of $98.62 per barrel was hit just last week.
Remember a couple of weeks ago, when pundits were saying $120, $140 and even $150 per barrel could be the breaking point for oil prices? The slow absorption of higher prices made it possible for consumers to adjust to rising prices without a serious cutback in demand.
Well that belief is being challenged at the NYMEX today. Paris-based International Energy Agency cut its forecast for fourth quarter demand by 500,000 barrels a day. IEA says next year's demand is forecast at 87.69 million barrels a day, or 300,000 barrels a day less than earlier estimates.
Meanwhile, a survey by Platt's showed OPEC pumped more oil in October than it did in September by 350,000 a day. That from a group that says it won't be discussing production increases at its upcoming meeting this weekend. So as demand is dropping, available supply has been on the rise.
Here's an interesting quote from M.F. Global senior vice president John Kilduff: "I still believe we're going to go higher ultimately, but we've all been trying to find out where the tipping point is with these high prices--is it $100, is it $120, is it $140. Clearly, it might be closer to a $100 being the tipping point given the IEA report showing demand destruction. You're starting to see consumer capitulation and consuming nation capitulation, and that's what the market's starting to tell us right now."
Kilduff, a CNBC contributor, has forecast oil would reach $100 a barrel and then back away from that price. He says he stands by his $100 forecast. "To get through $100, you need all the levers in place--strong economy, weaker dollar, good stock market and demand remaining strong," he said.
The "weak links" or latecomers to the oil rally are bailing out today. He described them as the "hedge fund type of investor." "The momentum has gone out of the market for now. A lot of the last surge was a lot of momentum players trying to capture the ride to $100 and potentially beyond," he said.
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