As economic data continues to validate the notion that the recovery will take time to develop and play out, speculators that had begun to jump back into the oil market are starting to back off. Oil has quickly dropped toward the $60 level after reaching near $75 late in June.

Tuesday (July 7), light sweet crude oil dropped in New York trade by $1.12, settling at a rate of $62.93 per barrel. The good news for businesses and consumers is that the cost of fuel has dipped as well of late. Normally, summer driving activity pushes rates at the pump higher.

Ironically, the price of oil has been moving in close correlation to the stock market and other financial markets. As investors grew hopeful about a quick recovery during April and May, oil also climbed. Now, as investor sentiment has cooled a bit, oil has begun to slide as well.

Historically, moderate oil and fuel prices have been seen as a boost for the economy. Lower costs for travel usually encourage transportation, consumers spending in other areas, and business expansion and goods transport.

However, the cost of oil has been largely associated with the broader economic perspective during 2009. Investors view waning interest in oil and fuel as a sign of consumers and businesses tightening their belts to keep costs low. This just goes to show how a severe recession changes the general paradigm of thinking in the market.

Now that the emotional roller coaster of speculation has propped oil up and then brought it back to reality, what may develop in the next few months is a marketplace driven more by real data as opposed to sentiment. Investors appear interested now in seeing some proof about a healthier economy as opposed to minor data reports or commentary from analysts that sounds encouraging.

Some stability in oil and gas prices might be a good thing for consumers and businesses. Many companies are waiting to see what happens before sending more trucks on the road or expanding operations. If they can get a read on where the market is going to settle for a while, the predictability might make it easier to make some moves.

Budget-conscious consumers would probably appreciate knowing what to expect at the pump as well. Prices have generally remained in a range in the mid-$2 area, but constant fluctuation throughout the day has become the norm as oil has heated up and then cooled off regularly.

Along with concern about the economic situation, turmoil in the Middle East, especially centered on Iran, has caused some concern about the potential supply and delivery of oil. Much of the oil travels through the waters near Iran and with political tension at a high following the recent presidential election, some worry about the normal flow of oil being interrupted at some point by war or conflict.

Neil Kokemuller
11:13 PM EST
Tuesday, July 7, 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.