Sharp Fall in Oil Prices

Finally some good news in the oil market --- prices are falling. But don't be fooled, while the cost of U-S crude is down, prices are still hovering at record-high levels.

WHAT GOES UP MUST COME DOWN -- THIS TIME. LESS THAN TWO WEEKS AGO OIL WAS SCALING NEVER-BEFORE-SEEN HIGHS ABOVE 147-DOLLARS A BARREL. TUESDAY'S THREE-DOLLAR DROP IN OIL TAKES CRUDE'S DECLINE IN RECENT WEEKS TO 20-DOLLARS -- ITS STEEPEST LOSS SINCE FUTURES BEGAN TRADING IN NEW YORK IN 19-83. WHAT'S BEHIND THE CRASH?

"The world has divided into camps of almost religious fervours. On one side you have the fundamentalists who think it's all to do with supply and demand; namely that demand has been growing almost faster than production and that the world's reserve capacity is such that the oil market is getting tight... However, that cannot explain how we can be down $20 in seven days."

CERTAINLY, THERE WAS RELIEF THAT THE APPROACHING HURRICANE DOLLY WOULD NOT HAVE A BIG IMPACT ON OIL AND GAS PRODUCTION, WHILE A BUILD IN U-S STOCKPILES HELPED SEND OIL TO ITS LOWEST LEVEL SINCE EARLY JUNE.

AS OIL CONTINUES TO SLIDE, THE REST OF THE MARKETS ARE BREATHING A SIGH OF RELIEF. ON WEDNESDAY, EUROPEAN INVESTORS FELT CONFIDENT ENOUGH TO PLOUGH BACK INTO EQUITIES, SENDING SHARES TO THREE-WEEK HIGHS. BUT CAN A FALL IN OIL PRICES SOLVE THE UNDERLYING PROBLEMS OF A SLOWDOWN?

 "No but it would help... It seems to be that there was a wall at $100 and anything above $100, $120, $140 really hit the economy. Until then, the world could live with it.

So if we go down to $100 or possibly below, that would help the world economy."

REMEMBER, OIL WAS STILL AT 92-DOLLARS A BARREL AT THE DAWN OF 2008,

MEANING PRICES ARE UP MORE THAN 30-PERCENT THIS YEAR. AND WITH DEMAND PROJECTED TO CONTINUE GROWING IN THE LONG TERM, THE CHANCES ARE OIL PRICES WILL GO UP AGAIN -- BUT MAYBE NOT SO SOON.