Oil prices dip below $80 before rising again on potential stimulus spending

By Phaedra Friend Troy 

In a volatile trading day, the price of crude oil on the New York Mercantile Exchange fell below $80 Tuesday to climb again later in the day and drop again in the afternoon.

While the price of crude fell to a low of $79.20 in intra-day trading, investors again buoyed the price to $80.33 on the NYMEX later in the day. Afternoon trading saw the price of crude again below the $80 mark at $79.74 a barrel.

Dampened by the news of slowing economic growth in China and a fall on Wall Street, as well as a strengthening US dollar, the price of crude dropped below the $80 mark for the first time in more than a week.

Crude oil was temporarily lifted, likely supported by the news that the US Federal Reserve may hasten its stimulus retreat.

Prompted by weak economic news, the Federal Reserve met Tuesday to discuss easing the stimulus retreat to buoy a not-yet-recovered US economy. While interest rates are nearly zero, the feds may try alternatives to help prop up the less-than-burgeoning economic recovery.

The stimulus affects the value of the dollar, which in turn has an inverse relationship with the price of crude oil. With oil traded in greenbacks, foreign investors are eager to gain value when the dollar drops, and US-based trades tend to increase in an effort to invest in a hard commodity in the face of inflation.

The uncertain state of the global economy has most likely deterred investors from the commodity.

Oil Prices Trying to Establish a New Trading Range

While the price of crude oil had remained in a mid-$70 trading range for a number of weeks, crude oil jumped above the $80 mark, climbing above $82 a barrel, earlier this month.

Many analysts believe the value of crude has jumped into a new trading bracket, this time in the $80 to $90 range. Nonetheless, the above-$100 highs seen in 2007 are not expected anytime soon.

Experiencing what many analysts believe is a closer alignment with market fundamentals, the price of oil usually sees a high during the summer months due to vacationing and the threat of production interruptions due to the Atlantic hurricane season.

Currently, there are two storms expected to strengthen into tropical cyclones, threatening production and potentially stalling drilling rigs. As of Tuesday, BP stopped relief well drilling at the Macondo well as a safety precaution.

The regular inventory report is expected later this week, which will help to determine actual supply and demand.

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