Oil peaked above $73 per barrel last week, but prices have dropped steadily, with a strong fall below $67 Tuesday (June 23). Expiring crude for July delivery expired on Monday, with speculators pushing rates down $2.62, to settle at $66.93. US crude for August delivery also quickly dipped to the $67 per barrel level.

New economic data and warnings on a global front sent a message to markets that the economic recovery was likely to be slow. This signaled oil speculators to assume that demand for oil would not pick up as quickly as some had previously anticipated. This factor, along with more weakness in the dollar, helped lead the dip in oil.

In other oil news, Kuwait’s oil minister Sheikh Ahmad al-Abdullah al-Sabah said that the Organization of the Petroleum Exporting Countries (OPEC) is not going to cut output at its September meeting. This means that production should remain constant, while demand is not going to pick up swiftly. The Sheikh did say that the organization is going to increase insistence that members comply with previously agreed upon cuts.

OPEC, the world’s top producing oil countries and the leading oil exporting group, would like to see oil at a near-term price point of $80 per barrel. However, it is hard for the organization to have as much control over the market when economies are down worldwide and the dollar is weak. Consumers and businesses still seem prepared to hold steady on transportation, and oil and gas consumption. This more consumer-controlled market is quite different than the situation in oil last July when prices topped out above $147.

Although OPEC could make production cuts to try to help drive prices higher, it would be difficult to get a majority of the group’s members to agree to such cuts, given their need to export. The members also seem to recognize that economic recovery and upward equities movement are the major catalyst needed to drive demand for oil. The market is waiting for solid evidence that the economy is not only on the way back up, but has a firm grip in its recovery efforts.

One positive sign on Tuesday was a report on previously owned home sales that showed growth of 2.4 per cent from April to May. This was the third monthly gain of the year. While the number was below analyst expectations, it does show stability in housing, convincing some that real estate has hit bottom. Foreclosures, higher mortgage rates, and other market delays are still a burden on the market, though.

Housing is one of the closely watched economic sectors in terms of the overall picture of the economy. Currency speculators will have a lot of to say about the potential for oil to climb as well. Continued weakness in the dollar will stifle any hope for higher oil and will likely push prices lower. Of course, consumers would see lower fuel prices as a bonus.

Neil Kokemuller
8:36 PM EST
Tuesday, June 23, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices .

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.