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Oil prices are down a bit after trading up close to $127 a barrel yesterday on fears that production cuts could be coming out of oil rich Iran.
While the chatter out of Iran could be just that, idle chatter, there was still enough of a reason to spook investors into pushing crude oil up significantly Tuesday, leading to a closing price last night of a pretty remarkable $125.80. Prices hit a high Tuesday of $126.98.
One of the main factors that has led to the current record high prices is the weak U.S. dollar. Yesterday, the dollar actually rose a bit, but traders looked past that data and instead decided that any sort of production cut rumors coming out of Iran warranted more attention.
Iranian officials put out a statement saying that there no were production cuts planned for the OPEC country, but admitted that officials had discussed the option of trimming the country’s daily output. While nothing is out of the question, I do find it highly doubtable that Iran would actually cut back on its daily production at this time. With the country’s economy in the shape that it is in, and with the current price as high as it is, it just does not make sense for it to cut production at this time. What makes sense, though, is creating a rumor that would panic the market into sending oil prices higher.
This day traders so far have given oil prices a little bit of a relief, allowing prices to drop by 54 cents, down to $125.26. I wouldn’t expect to see prices decline too much as investors await this week’s inventory report from the Department of Energy.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the on the internet investment advisory service Investor’s Observer.
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