Monday, October 6, 2008

surge in oil price a reality or hype?

Oil an essential commodity treated as precious as Gold has made its peak this year. After the attainment of the peak there is a sudden fall in the oil prices. The OPEC were forced once to inc the trease its production are now thinking of reversing the trend. What can be the real behind this?

Looking back at history now it can be said that there was economic bubble due to the subprime crisis in US. Countries were worried about the consumption of oil by China due to the development activities prior to Olympics. Hence according to me the people started to manipulate the scarcity for oil. This gave rise to the increased level of short selling in the market. This not only affected the oil industry but industries which are related to oil such as automobile industry were affected. The sales volume started falling down and yoy sales and profit fell down.

Unfortunately by the end of Olympics the economic downturn started with full force which affected not only the west (US/EU) but also the East(Japan/Singapore) which entered recession. When the economies which attributed for 40% of global economy is in recession again people started thinking of less demand for oil. Thus started the downturn and now it is even predicted that oil might even go as low as $30-$40 a barrel. Now due to the financial failure in US, banks are not confident enough to approve loans which is affecting the sales of automobile industry.

Thus according to me the real for this unrealistic movement of oil price is the investor sentiments due to improper prediction and not the subprime or credit crunch or anything else. But these terms are related in one way or other with the investor sentiments based on the glass through which they see the world.

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