Oil

[mtcookson]

Good news, I hope.

Oil skids about $3 on OPEC comments

Cartel president says there is adequate supply and prices are much too high.

Oil prices briefly fell below $121 a barrel on a big slide Tuesday after OPEC's president said crude prices were abnormally high and many investors continued to bet that the fundamentals of the market will push oil down.

Light, sweet crude for September delivery tumbled $3.46 to $121.27 a barrel, having fallen as low as $120.42.

The drop came after Chakib Khelil, president of the Organization of Petroleum Exporting Countries, told reporters in Jakarta, Indonesia, that the oil markets were being adequately supplied, and that prices were being inflated by geopolitical tensions.

"If the dollar continues to strengthen and the political situation [with Iran] improves, then the long-term prices will be about 78 dollars (a barrel)," said Khelil, according to reports.

Khelil, who is also the oil minister for Algeria, spoke to reporters while visiting Indonesia's energy minister.

The threat of a conflict between the West and Iran has raised major concerns about supply from the Middle East. However, there has been little saber rattling from either side since they met to discuss the oil producer's nuclear program over a week ago.

"Comments out of somebody like this definitely carry a lot of weight, especially with the market so nervous," said Neal Dingmann, senior energy analyst at Dahmlan Rose & Co.

Price drop: Crude prices have fallen by double digits over the past two weeks as oil investors worried that high prices for fuel made from crude oil have seriously damaged demand.

Average prices for regular gasoline in the U.S., the world's largest oil consumer, fell for the 12th straight day Tuesday, but remained near $4 a gallon - more than 36% higher than they were a year ago.

Oil has fallen 15% from its trading peak of $147.27 set July 11, though prices remained nearly 65% higher than they were 12 months ago.

"The market is more focused on the fundamental economics aspects than the geopolitical aspects," said Tom Orr, head of research at Weeden & Co.

Speculation?: Oil investors, who have been blamed for pushing oil to record levels, have caught on to the trend of declining demand, according to one trader.

"Basically, as they (speculators) were the villains of pushing the market to extreme levels very fast... they're now doing the opposite," said James Cordier, founder of OptionSellers.com in Tampa, Fla., who referred to himself as a speculator.

In a report released Monday, the Commodity Futures Trading Commission said that, last week, more investment funds held "short" positions - betting that prices will continue to fall - than those that bet "long" - that prices will keep climbing.

It was the first time that short positions have outweighed long positions since the start of 2007, when oil prices began climbing, according to Nauman Barakat, energy trader at Macquarie Futures USA, in a research note.

Nigeria: Worries about a demand slide also overshadowed disruption in demand from Nigeria, Africa's largest oil producer.

Prices spiked in early trading after reports revealed that militants in Nigeria had damaged two oil pipelines operated by Royal Dutch Shell (RDS.A), but then retreated.

Rebel attacks on Nigeria's oil infrastructure have been a constant concern for oil investors, and a factor that some analysts believe is already included in the market price.

[smockers83]

Wasn't it just a month or two ago during their "emergency" meeting that they said high prices were due to high demand or something? So now they're saying this because demand has fallen at those high prices and they've lost a lot of money.

[96Qowner]

Supply and demand are funny things. We just tend to think that the price is proportional to the amount of demand or the amount of supply. But what actually happens is that the price keeps rising until supply meets demand - no limit - has nothing to do with how close the gap is. If there's more demand than supply, the price just keeps rising.

This causes demand to fall. When supply is finally able to meet demand, the price falls quickly, until demand and supply are equal again.

If speculators have switched sides, they'll help bring the price down fast. Frankly, I hope a lot of 'em caught their titties in a wringer first.