Oil Prices Plunge to Five-Month Low, 09/02/08

Oil prices hit $105 per barrel, (a five-month low), during early trading and settled at $109.71 per barrel by the end of the day. The drop was precipitated by investors selling off their bets that oil prices would move higher. Many feared that Hurricane Gustav would severely disrupt refineries in the Gulf region, but the Hurricane came and went without much damage. The implication of the drop in oil prices is that many other sectors of the market are keyed off by oil prices. Companies in the transportation industry, such as Delta Airlines saw a 12% jump in their stocks. Businesses and investors also hoped that cheaper energy costs would lead to greater spending. On the other hand, commodities such as coffee, corn, and wheat and raw materials like gold and silver all declined. The drop in oil price also strengthened the dollar against foreign currencies like the Euro and British Pound. Tom Bentz, an energy analyst at BNP Paribas, states that,“A lot of commodities are keyed off of oil. Whether that’s due to the weakness in energy or due to the strengthening of the dollar, it’s hard to say.” It is evident from this article that many market trends are determined and influenced by energy costs.

See the article here. -V