Crude oil prices fell to four-month lows this week on the news that industrialized nations would release 60 million barrels of crude oil from strategic reserves. Half of the 60 million barrels will come from the United States' Strategic Petroleum Reserve, located in the Gulf Coast.
On Thursday morning, the International Energy Agency (IEA) announced its intention to release the oil over the next month. Analysts have cited supply disruptions from the Middle East and concerns about high oil prices hurting the global economy as the driving forces behind the decision. The IEA was formed by industrialized nations in the 1970's in response to oil price shocks at the time and is often described as the consumer nations' response to the Organization of Petroleum Exporting Countries (OPEC) cartel.
Crude oil prices were already down significantly from their high made last month near $115 per barrel, but dropped an additional $4 per barrel this week (-3.9 percent) to $89.70 per barrel. As crude oil prices fell, so too did gasoline and diesel futures prices, with those markets each falling nearly 20 cents per gallon.
Some long-term crude oil bulls note that this recent dump of crude oil onto the market will not resolve long-term supply issues and expect the market to recover after the supply shock has worn off.
As crude oil prices spiraled lower, other related markets felt pressure as well. Corn, which requires significant energy inputs and is used chiefly to produce the gasoline additive ethanol, fell to three-month lows on Thursday. Gold and silver dropped to two-week lows as well, with August gold falling to $1505 per ounce and silver slipping to $34.45 per ounce.
Cattle stampede higher
Over the last two weeks, cattle prices have moved swiftly higher, climbing 11 cents per pound (+10 percent). Prices rose as the market reacted to a recent USDA report showing a smaller supply of cattle that may fall short of demand in the coming months. Beef was further supported by the drop in the crude oil market, as lower energy prices allow consumers to spend more money at the store.
Opinions are solely the writer's. Alex Breitinger is commodities broker with Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN. He can be reached at (800) 411-3888 or indianafutures.com. This is not a solicitation of any order to buy or sell any market.