Is the Down Economy driving lower Gas Prices?

Global economic slump, specualtive bubble bursting, value of dollar rising all are having an effect.

 

In Southern California the highest I've had to pay was $4.89, for 87 octane octane, and yesterday I ONLY paid $3.34 at Costco. One can only hope this depression continues to our lower the gas prices.

 

Oil's off by nearly half. Forecasts are that a major slump in demand is occurring due to global recession. Oil price dropping as a result is predictable, just like the housing bubble and credit crunch--the market doesn't seem to see these things coming until it is already upon them. Oil demand usually drops during recessions. But for a year the U.S. has been in denial about recession...so oil continued upward. The same sort of thing was playing out internationally.

Paid $2.67/gallon yesterday...

 

They (OPEC) are talking cutting production to drive up the price. They cut 1/2 a mil of barrels a while back. They where happy to keep it at 28per last fall, now you want to talk greed.

We either need to get them to foot the bill for the military protection and escorts they get for their transportation, or drill, hit alternatives hard and give them the boot.

Fuel for the Military is number one consumer.

 

It will be interesting to see if the price of durable goods and groceries goes down with the price of gas. We certainly saw a marked increase last spring and summer when we were paying $4+ for gas. It is nice to see the price of gas go down just in time for the increase in winter heating bills. Our avg. today is $3.51.

My GG SUV is still parked in the garage. No need to get 15 mpg even with the price dropping.

 

Milk has gone down locally with gas prices. It's about 60 cents/gallon cheaper than it was a few months ago. I'm seeing a decline in various dairy products, but milk is the most obvious.

 

There's definitely demand destruction because of the economy.. The U.S. Department of Energy's Energy Information Agency publishes a weekly report on U.S. petroleum inventories and they have either been falling less than expected or rising in the past couple months.

There was a slight spike after Gustav and Ike (with the temporary shutdowns of the refineries along the Gulf Coast), but that wasn't enough to offset the economy's effects.

The fact that China seems to have completely stopped importing anything after the Olympics also drove down commodity prices. It is truly mind-boggling how China can just drop off the face of the Earth-- When they stopped their imports, every commodity except gold took a nosedive. Oil. Natural gas. Coal. Copper. Silver. Steel. Fertilizer. Whoever can divine when China is going to start importing all that stuff again can make a boatload of money buying commodity stocks, considering how severely they have been punished in the past two months.

With all the demand destruction, they are saying oil can go to $50 a barrel if the current financial crisis persists. We may very well see $2/gallon if that happens.

 

Gas in central Missouri is well less than $3/gal. Demand is down and supply on hand is high. Therefore cost will be reduced in order to move supply. Normally this works well but we are in unusual times. World demand for petrol in below what it was after 9-11. Until the markets get straitened out I suspect we will have lower fuel prices.

OPEC nations were meeting today. They could possibly reduce supply thus causing a price increase. This will not be helpful to the world economy though.

 

OPEC wants to complain about how we are mismanaging our economy, yet they are into us for a lot of money and seem to make gains no matter how the markets are doing.

I look to them to cut production drastically. I could be worng, but I don't trust them.

The US Department of Defense (DoD) is the largest oil consuming government body in the US and in the world
“Military fuel consumption makes the Department of Defense the single largest consumer of petroleum in the U.S

“Military fuel consumption for aircraft, ships, ground vehicles and facilities makes the DoD the single largest consumer of petroleum in the U.S”

The US military is the biggest purchaser of oil in the world.The US military oil consumption | Energy Bulletin

The middle east as a whole should pony up 50% of it's consumption. They can divvy it up any way they like.

Oil from the Persian Gulf accounts for 10% of the oil used in the U.S.

Before the overthrow of the Shah of Iran, the two legs of U.S. policy in the oil-rich Gulf region were Iran and Saudi Arabia. With the victory of the Islamic Revolution, reliance on Iran ended, and U.S. policy has still not regained its balance. Foremost among the problems with current U.S. oil policy is that the cost of protecting Gulf oil, with the U.S. insisting on a unilateral defense strategy, is too high.
Despite their high dependence on Gulf oil, neither Japan nor Europe plays a major role in strategic defense of the region, and as long as its partners ante up cash for major operations like Desert Storm, the U.S. is prepared to continue to keep strategic command. Even without a crisis of Desert Storm proportions, oil from the Gulf ends up costing more than its per-barrel price because of billions in defense costs.http://www.fpif.org/briefs/vol2/v2n4oil.html

 

Question is, can OPEC make its production cut stick?

With demand destruction, they can cut production back to match demand, but they cannot cut any further than that unless they want to risk further unintended recessionary consequences (and thus even less demand).

And we know countries like Venezuela have no other sources of income, and Chavez is depending on oil revenues to drive his social welfare programs. Ditto Iran. Would they be willing to take the hit in oil revenues by cutting back production?

Then again, with the current market conditions, U.S. alternative energy companies are suffering. Higher oil prices is what these solar, wind and natural gas companies need to prosper, so maybe we should be rooting for OPEC to succeed in raising oil prices.

 

I think that current significant oil prices drops are due to speculative reasons, basically they are on similar grounds as price spikes before them.
I do not see long term drop on oil demand. And due to oil being non renewable and that oil was not yet replaced by alternatives in significant amount, I believe that we will be seeing "good old" oil prices in excess of 100 bucks per barrel within a year.
If we are lucky, we will get some head time to develop alternatives to oil. If we are unlucky, short term price drops of oil plus recession will kill investments made into alternatives sector and expose us on long term oil dependency even more.

 

I agree speculation does have something to do with it, but this time I think the demand destruction is real. Since the beginning of the year I've tracked the weekly EIA inventory reports, and after oil peaked at $147 in July, almost every week the inventory of crude and gasoline has either dropped less than expected, or rose.

I think the speculators just amplified the movement-- First they moved massive amounts of money into oil on its way up, and when they saw that Americans flat out refused to pay more than $147 for a barrel of crude (that's when we started seeing consumption of crude and gasoline decrease in July), the sell-off started. Add to that the current credit crisis which decreased demand for oil even more, that amplified the selloff even more.

The longer this (not officially acknowledged) recession lasts, the longer oil prices will stay depressed I think. Question is, how long? If it stays like this for a couple of years, alternative energy companies are going to have a very very tough time surviving, I think.

 

Maybe demand is down because everybody is hiding under their beds--with their money. LOL.

It's all about speculation. The market selloff has dropped prices as well--since a lot of investment companies are selling their commodities to raise cash.

The lesson is you have to regulate oil futures (you must buy oil to buy futures, as before 2000). I've read that the big financial companies pushed the oil futures price up buying futures, trying to recoup their subprime losses. They then probably sold off to raise cash.

The price goes down when you sell, up when you buy. Basic economics.

 

It's not speculation it is demand decline. Gas/oil are highly inelastic--as was re-proven beyond a shadow of a doubt over the past few years.

 

Oil prices were down to $77.70/barrel on Friday per U.S. gasoline price marks biggest drop ever: survey - Yahoo! News. One can look at week by week oil prices at Weekly All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel).

Yep. Also, I don't think we've heard any sabre rattling from nutjobs like Ahmadinejad and it seems like fears of Middle East conflicts have died down for now.

 

You weren't listening to the recent Congressional hearings on oil prices when oil was at $145 a barrel. Even the oil lobbyists said it was speculation, and the price would go down below $100 when the bubble burst.

There has been huge amounts of money taken out of oil futures recently with the stock market crash. Watch oil shoot up again if the market rebounds, as it might do today.

 

I got a kick out of an advertisement I heard this weekend. It was by CITCO (Venezuelan of all countries) telling people how they should buy from them.

Have to agree with sport.

 

The hearings were good for a laugh.

The last place you will learn anything about market economics is in a Congressional hearing--usually set up more for political posturing than substance. The difference between oil at $145 and $100 is negligible (45% increase) compared to the rise from $25 to $100 (300% increase). This happened over a few years and demand did not decline even slightly until very late in the game. The current demand decline is still slight when you put it in context. It isn't being driven by the price of oil, but more by other larger economic factors.

Besides, the oil lobbyists are of course going to blame the price on specualtion, duh! You tell the addict with money what they want to hear so they keep buying. These same oil geniuses were projecting oil at around the $30 mark about now...back in 2003. It wasn't too hard to see that we were coming out of recession at that time and that oil price would rise rapidly as demand increased, just like it had following past recesssions. But if oil industry projected rising prices, folks would start doing more energy saving and feedstock conversion projects and that would hurt the oil suppliers' long term market. Business lapped up these unsound projections though, because the oil industry was telling them what they wanted to hear...just like in the hearings.

The "blame it on speculators" game is about as silly as blaming the financial crisis and bank failures on short sellers. (Same thing happened during the Great Depression, lengthy witch hunts failed to produce evidence that it was a cause.)

If production capacity (supply) was available, "speculators" couldn't "control" the price. Why? Because those with available capacity would keep supplying it at that price. (What fool would sit on oil he could produce at less than $25/bbl when the price was over $100?) The oil producers have been embarrassed by being unable to supply the market.

 

ENJOY the low prices and realize that we've been over-charged for quite some time now. it's an actual joy to see that it only takes $22 to fill up from three pips left. what we have to be concerned about is that ALTERNATIVE fuel/power is inevitable. who is governing the future regulations of these companies? we've been ruled by crooks long enough.

SANTACRUZGAL - you've got my vote for the scarriest avatar lately! very nice.