Crude oil prices tumble on S&P 500 weakness

WTI, S&P Jul09.jpg

Sometimes, the blog gets lucky with its timing. A week ago, it wrote bearishly on crude oil markets, and suggested that “chemical companies need to keep a close eye on changing sentiment in financial markets”. By Friday, oil prices had tumbled 11%, as the US S&P 500 index continued to weaken from its 12 June peak.

The blog does, however, feel able to give itself another pat on the back for its underlying analysis. Back in May, it thought there was a good chance that oil prices (then $60/bbl) could well see a “move towards $80/bbl by the summer, if investors remain confident”. And it also cautioned that if financial market “sentiment begins to change”, then a downwards move towards “$40/bbl could happen very quickly”.

The driver for the changing sentiment in financial markets seems to be changes in the US$: € rate. The evidence for this is as follows:

• The US$ hit a high of 1.26 versus the euro on 3 March
• The S&P 500 bottomed 3 days later at 666.
• The euro then rallied strongly, peaking on 3 June at 1.43 versus the US$
• The S&P 500 also rallied strongly, peaking on 11 June at 956.

And as the updated chart above shows, WTI continues to track the S&P very closely. It also peaked on 11 June, at $72.69/bbl.

The blog will keep a close eye on future $:€ developments. It would welcome readers’ insights as to why these might currently be so crucial.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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2 Responses to Crude oil prices tumble on S&P 500 weakness

  1. Robbo 13 July, 2009 at 10:23 am #

    Dear Paul,
    I’m buying gas by the pint at the moment in the hope of a big price fall at the pumps in time for my summer driving holiday in mid-August. Is this a good plan?

  2. Mike 13 July, 2009 at 5:29 pm #

    I’m no expert, Robbbo, but as a visitor to the site answering your question, I’d say it doesn’t make much sense micro-purchasing gas by the the pint except in extreme situations (Katrina was a good example). Even if a change in the price of oil where to change the price of gas by 10%, the amount you are saving by “playing the market” is quite nominal, just as would purchasing $50 worth of stock. You’re risking little, and you only stand to gain little. Gas is fairly inelastic… and people don’t spend all that much on it. $20 here, $50 there…. people spend much more on clothing, food, or even entertainment. So yes, it may cost $2 less to fill your tank a month from now as compared to harboring that fuel in your tank today. Skip a movie and you’ve saved that much five times over (six times if you include the gas to get there). Is it really worth your time and energy?

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