Key Factor Behind Oil Drop
By Tony Crescenzi
Street.com Contributor
11/16/2006 2:52 PM EST
Oil is sharply lower on the day, partly reflecting Friday's expiration of the December contract. There is a pattern in the commodities market wherein expiring contracts trade either sharply higher or sharply lower just ahead of their expiration. This occurs because the contract becomes a proxy for the spot market, where supplies may either be in short supply or superfluous.
In the crude oil market, supplies are widely perceived as sufficient, and Thursday's decline in prices suggests that they are superfluous.
By Tony Crescenzi
Street.com Contributor
11/16/2006 2:52 PM EST
Oil is sharply lower on the day, partly reflecting Friday's expiration of the December contract. There is a pattern in the commodities market wherein expiring contracts trade either sharply higher or sharply lower just ahead of their expiration. This occurs because the contract becomes a proxy for the spot market, where supplies may either be in short supply or superfluous.
In the crude oil market, supplies are widely perceived as sufficient, and Thursday's decline in prices suggests that they are superfluous.
