Oil price plummets this week

Oil Barrel 100 Pictures, Images and Photos
This week saw an end to the ridiculously high oil price as the commodity dropped almost 10% in one day and almost $17 in a week. This marks the largest one week price drop oil has ever had. There are a bunch of smaller reasons for the drop including a strengthening U.S. dollar and some bad economic news a few days ago (although it was followed up with good economic news by the end of the week). However, beyond the small reasons experts are giving for this big slide in oil prices, the main reason was that it was a ticking time bomb that saw an excuse to go off.

As I have been saying since the Egyptian revolts began earlier this year which prompted the recent surge in oil price, the commodity was facing fear and speculation which inflated the true value of it. The uncertainty caused by the protests in the Arab world has scared investors into thinking that Saudi Arabia’s oil production is in danger. This was the main cause for the artificially high oil price and it was kept high with the fact that the economy is improving. Since it was not due to real market fundamentals and simply fear and uncertainty in the market, it was not a true reflection of the value of oil and thus, was due for a big drop. It was a mini bubble that formed and it got to a point that any reasonable excuse would act as a needle bursting the bubble.

For the vast majority of people that are not invested in oil, this is very good news. The price of oil was getting dangerously close to affecting how people spend and consume which could have threatened the economic recovery. At around $97 per barrel, the price of oil is still too high and hopefully the price drop will continue. Ideally, it would go down to around $80 per barrel although I’m not sure that will actually happen. The next week will be interesting to track oil to see if the drop has ended or if there is more room to go.