There were many happy faces who long the stocks especially in the last hours of trading when all the major indexes had gains of almost 3 percent. Dow Jones alone shot up more than 330 points. In a widely expected rate decision, the central bank reported that “economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports.” Now some analysts are convinced that Bernanke’s team will keep rates on hold until the early part of 2009.

Meanwhile crude oil finished the day just above $119 a barrel – its lowest settlement price since early May after it tumbled as low as $118 a barrel Tuesday. Light, sweet crude for September delivery fell $2.24 to settle at $119.17 a barrel on the New York Mercantile Exchange, the lowest close since May 2. Oil traders think U.S. economic slowdown and high energy costs are forcing consumers to cut down on demand for gasoline and other related petroleum-products. Many also think China’s economic demand has finally slowed down. The dollar’s six-week highs against the euro also contributed to oil’s decline.

But the excitement is not over yet. As with other instruments, oil prices were filled with speculators and this time around hedge funds who long oil-related contracts are being punished. Already a large hedge fund SemGroup LP folded after losing $2.4 billion in bad bets on oil futures. Other funds were seen busy dumping huge amount of natural gas contracts to free up cash.

So, Anwar was right after all when he mentioned that the oil prices had reached its peak during his debate with ruling government’s Information Minister recently. Interestingly the ruling government now is toying with the idea of lower the petrol prices now. Nevertheless I’m more interested to see if Dow Jones can climbs back to above 12,000 mark.

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August 6th, 2008 by financetwitter

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