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The Stunning Rise & Fall Of Crude Oil

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The price of crude oil closed around $45 per barrel on the last day of 2008 -- surging 14% in the final day of trading -- and wrapping up what has been the most turbulent year ever in crude markets.

In just five months, crude has given up four years of gains in a stunning collapse as the world's leading economies sank into recession.

A Stunning Year

Oil had been rising steadily since 2002, jumping 57 percent in 2007 to $95.98 a barrel. That climb only accelerated in 2008, fueled by speculation that soaring growth from China, India and other emerging economies would outpace demand for crude while a weaker dollar helped drive up prices to a record $147.27 a barrel on July 11th.

But the oil bulls were soon slaughtered. Prices tumbled as a mortgage crisis in the U.S. blossomed into a world wide financial crisis. Not even hurricanes Gustav and Ike in the Gulf of Mexico in September or the Middle East conflict between Israel and Hamas have been able to stop crude's slide.

The high price of oil spurred so much production that the globe became awash in oil. The January contract, which expired Dec. 19, settled at $33.87, the lowest level since early 2004 as brokers and traders attempted to unload supply for whatever price they could get.

In yet another sign of falling demand Wednesday, the U.S. government reported that crude stockpiles rose again last week, despite expectations for a steep drop, while gasoline reserves jumped less than forecast.

What should you expect in 2009? We asked Addision Armstrong. He’s Tradition Energy director of market research and one of the most respected voices in the market.

Armstrong’s Oil Outlook

Armstrong tells us that the slide in oil prices is about done. “There’s a strong likelihood that oil prices will bottom in January,” he says . “I expect crude prices to hold after the February contract expires on January 20th.”

However, that doesn’t necessarily mean the oil bulls are about to start running again. “The key factor for oil prices in '09 will be the depth and length of the global recession,” says Armstrong. “Demand for crude will probably be higher in the United States but elsewhere in the world it will be slower to rebound.”

Prices At The Pump

As you likely know, gasoline prices have fallen substantially from the summer peaks above $4. In some parts of the nation unleaded regular is selling for $1.35 per gallon.

In fact, all around the nation prices at the pump have tumbled to five year lows. Although the price in oil signals worldwide economic weakness, some drivers can’t help but feel giddy about these low levels and hope they stick around for a while.

“Consumer demand will be the main factor driving gasoline prices in '09,” Armstrong says. In other words, whether prices stay low is anyone's guess.


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