World Oil Prices Down

My friend Hale Stewart sends the following today via email:

Gas prices are coming down for several reasons:

1.) The end of the Israeli -- Palestinian conflict.

2.) High US inventories of oil, gasoline and other oil derivatives.

3.) The end of the summer driving season.

4.) The EU/Iran chief negotiator announced today that "misunderstandings" with Iran were cleared up. I have no idea what that means. This is a big event because the Iranian situation has created a floor in oil prices for the last 6 months or so.

A drop in oil prices will ease inflationary pressures in the US. This will encourage the Federal Reserve to maintain its "wait and see" attitude regarding US interest rates.

However, it's always important to remember the oil market is extremely volatile. A random event could completely change this scenario. In addition, the oil market is technically oversold right now, implying a rebound to the previous floor of around $70/bbl may be in the cards.

An easing of inflationary pressures will be more than welcome as the domestic US housing market corrects itself. Hoefully, consumer confidence won't become too battered, though it's already been showing signs of deterioration.