Reuters reports that the assertions that oil prices were headed to infinity were a bit premature:

U.S. crude settled down $5.75 at $109.71 a barrel after trading as low as $105.46. London Brent crude settled down $1.07 at $108.34 a barrel. U.S. crude settled below its 200-day moving average price for the first time since May 2007, which is considered by many traders evidence that prices may fall further. Oil prices have tumbled nearly $40 a barrel since the July 11 record high of $147.27 as bullish sentiment has evaporated.

Our view is that oil prices are headed much lower. History suggests that is what will happen, and a number of analysts share that view. Also, a falling price environment should cause some OPEC members to cheat and produce above their agreed targets, which is apparently already happening. Finally, Saudi Arabia, in its role as the largest and swing producer in OPEC, was dissed big time just two months ago, and needs to reestablish the roots of its power. For these reasons and others, we wouldn’t be surprised to see oil prices decline even more than they already have since the peak.

UPDATE

A little more on this subject from the volatile Jim Cramer, who was ardently bullish for a while (the blue area represents oil prices and the red line is the natural gas price):

Two more hurricanes, a price that’s economic and down 40% in 8 weeks, a fuel that homeowners can switch to — is natural gas capable of collapsing even more than it has?…you must believe that natural gas can trade at the most outrageous discount in history, as it is if you use the old 6-to-1 ratio — it’s otherwise projecting $42 oil from the current $108! Even if you use what the bears on this site have been saying, a new 10-to-1 ratio because of the inability to switch, you have oil at $70. Can oil go to $70? Yes, if we can find more. Yes, if we weren’t running out. Yes, if driving doesn’t come back at $3 a gallon, where gasoline goes if oil cracks $100. Yes, if China collapses.

Even that last point is possible.

This entry was posted on Wednesday, September 3rd, 2008 at 1:13 am and is filed under China, General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.