For some reason I’m quite intrigued by the oil prices and how the economy reacts to it.
From my previous posts on oil price fluctuations, you can see that it was during mid July this year that prices peaked at US$147.50 per barrel. The current oil prices are below US$50 per barrel now, at US$48.77 per barrel.
That’s a great whopping one third drop in price in just under 6 months. I was filling up my car with petrol yesterday and I’m amazed to see the dollar meter going up at a much slower pace.
Heck, I’m even astounded that I got more liters than the dollars I’m paying for. I’ve noticed in Sydney, oil prices have cracked below the A$1 per liter mark. I think the last time we saw this was a few years ago.
It is speculated that the demand for oil will continue to fall as the economy is still crashing with unemployment rates rising and spend decreasing due to confidence levels.
Let’s hope the Arabs (OPEC) don’t cut production too much to the point that oil prices rise again despite the failing economy. Their black gold glory have come to an end.
For now anyways.
I’m very upset at the Australian dollar plummeting in a blink of an eye. From reaching heights of US$0.98 in July to now closing just below US$0.68, the Australian dollar has lost 30% in value in under 3 months.
Imagine if you’ve invested $1 million into the US dollar few months ago and sold out now? You’d make the quickest $300,000 gross you’d ever imagine.
What does that mean for people like me? It means it is now more expensive to travel overseas and purchasing overseas goods. With the price of oil dropping to around US$90 per barrel, I haven’t noticed any drastic changes in local petrol prices and also airfares. That really sucks as I’m planning to travel overseas early next year.
I’m sure there’s news all over with blazing headlines on how the global markets are following the US path as confidence of investors spiral downwards and selling off whatever they can to salvage what’s left.
Sure you’ve heard of all the sweet news of the US government bailing out companies such as Freddy Mac, Fannie Mae and AIG. I suppose this is to impart confidence into investors to not go into a selling frenzy and add further momentum to the downward freight train.
Rumours have emerged that Richard Fuld, Lehmann Brothers’ CEO tipped the economic landslide with the bankruptcy of Lehmann Brothers. But I guess he has no problems with his healthy $300 million in bonuses over the last 8 years. Apparently he feels horrible.
Yet despite these events, Berkshire Hathaway, Warren Buffet’s company, has bought a $5 billion stake in Goldman Sachs, another ailing investment bank.
According to Yahoo! News, oil prices closed at US$126.77 per barrel yesterday, down almost $20 from July 11 record high prices of US$147.50 per barrel.
If you do the maths, that’s about a 14% in falling costs for petrol. A few weeks ago, I saw petrol prices in Sydney go up to about AU$1.68 a litre and last Tuesday, I saw petrol prices were around AU$1.49. Tuesday is meant to be the “cheap fuel day” here.
Now if you do the maths again, that’s about a 11.3% in price reduction, which is inconsistent with the 14% fall in barrel costs.
I’m not entirely sure if my assumptions in calculations are right, but why aren’t the prices fluctuating proportionately?
Are the major oil companies pocketing big time from the large fluctuations in petrol prices due to supply and demand? Well according to The Age, British energy giant BP announced a net profit of US9.47 billion in the second quarter, up 28 percent.
So yes, I’d probably say so. If you somehow find a “black gold” mine, please let me know as I’d be interested in investing in it.