Why does it seem like the pundits are unable to guess what’s going to happen to the price of oil?

• Since last summer, oil prices have gone from record highs to extreme lows and then doubled again, in swings that don’t seem to be related to market fundamentals – supply and demand.
• The apparent disconnect between market fundamentals and oil price has reignited the debate about the role of speculators in commodity markets, as governments and investors fear a return to record oil prices in the current economic climate.
• In contrast to last year, the recent upswing in oil prices is happening in a recession and, therefore, not sustained by high demand. This will almost certainly result in even greater losses for the already struggling automobile and airline industries.

Facts & Figures

• Compared to last summer’s high of $145 a barrel, oil has increased from only $33 to $70 a barrel in just the past 7 months.
• Petroleum-based fuel accounts for 1/3 Southwest Airlines’ operating costs.
• The airline industry is projected to lose $9 billion this year, after losing $10.4 billion last year.

Best Quote

“To call this extreme volatility might be an understatement. Over the past 15 to 18 months, this has been unprecedented. I don’t think it can be easily rationalized.” – Laura Wright, Chief Financial Officer at Southwest Airlines

Tags: commodities, Oil, recession