2 Reasons Oil Cuts Can’t Stem the Price Drop

December 18th at 10:00am by Tom Lydon

Oil ETFsDespite OPEC’s production cut yesterday, oil prices keep plummeting and oil-related exchange traded funds (ETFs) are reaching new lows.

What’s going on?

Oil ETFOne reason is skepticism that OPEC actually will cut production, based on how large it is and past history.

These countries need the money. Another reason is that the markets may have already priced in a cut in anticipation, reports Pablo Gorondi for the Associated Press.

OPEC’s next meeting may be in January, and one expert says he wouldn’t be surprised by a 3 million barrel per day rate cut then. The next official meeting is in March, though.

The fact is, consumers are still continuing to scale back and until they feel like spending again, oil could remain flat for the time being. Plummeting property values, job losses, a lack of lending going on have all cut into consumers’ willingness to part with a few dollars.

As far as gasoline goes, demand is also off year-ago levels. In the next few weeks, oil could fall as low as $35 a barrel.

United States Oil (USO) is down 54.1% year-to-date, and is 70.4% off its July 14 high. It’s continuing to hit new one-year lows midday today.

Oil ETF

In November, leading indicators fell for the second straight month. The measure of the economy’s health has a six-month rate of decline are at the worst level since 1991, reports Ellen Simon for the Associated Press. The index gauges the future economic activity for the next six months by using 10 components, including stock prices, building permits and initial claims for unemployment benefits.

Unemployment numbers dropped, according to the Labor Department. The measure of Americans filing for first-time benefits declined even more than expected last week while the number of jobless continued to grow, according to Kenneth Musante for CNN Money.

Unfortunately, the decline in people filing wasn’t enough to offset the gain following Thanksgiving.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers

USO