Is it over yet? Oil prices drop like a rock
There's been a lot of head-scratching about the exact cause of the meteoric rise in price for a barrel of oil. Are speculators driving it to turn a quick buck? Is it the weakening value of the U.S. dollar? How about increaded worldwide demand? Chances are, all those forces are playing a part in the rise of fuel prices, and no single solution is likely to fix the problem.
Just as it was starting to look like prices would rise on a daily basis for the rest of eternity, the price of a barrel of oil dropped by $16 from Tuesday to Thursday. Economists point to the dismal economic and inflation news as a main factor for the drop. All we know is that ever since gas got more expensive, everything else started to follow suit. That leads us to spend less on things that we don't absolutely need, which probably isn't good for the economy.
With news of the large drop in the price of a barrel of crude, Wall Street got all excited and responded with a couple days of very positive gains in the stock market. Good news, right? Well, oil jumped by over $2 on Friday morning alone, so we'll have to see. Is the $4 per gallon nightmare almost over? Probably not, but we can hope.
[Source: Yahoo, Photo: Getty/Justin Sullivan]
Reader Comments (Page 3 of 5)
SimbaDogg 1:46PM (7/19/2008)
this is not going to stop me from building my weed whacker powered bicycle which gets 200+ mpg this summer. The road to the mad max future has already begun, and i'm gonna be prepared
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snakesausage 1:48PM (7/19/2008)
Oil did go up $2 just before trading started but it lost those two dollars before the end of the day settling at $128.50 for the weekend. I have been predicting $60 oil and $2.75 gas before Feb next year for a month now. While I do believe that oil will make a short recovery, maybe even another record price, it will drop like a rock as soon as the major speculators drop out and leave the smaller players holding the bag.
FYI…
Here is a ticker for Light Sweet Crude on the NYMEX
http://freeserv.dukascopy.com/chart/?stock_id=504
Here is a history of the mid-80's oil situation:
http://en.wikipedia.org/wiki/1980s_oil_glut
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Artie Lange 1:53PM (7/19/2008)
If you think that we are going to see $60 a barrel oil within the decade, never mind next year, you have a fundamental misunderstanding of economics, energy, and the speculative market. But please prove me wrong; hock everything you own and short oil. When I pass you on the street, I'll be sure to put a penny in your cup.
why not the LS2LS7? 2:03PM (7/19/2008)
In order for oil to get back to $60, I think the dollar would have to make a huge recovery. That would make it almost 40% cheaper on the world stage than it was 5 years ago.
Bryan 2:25PM (7/19/2008)
If you are right, or even close, I'd become your personal slave. Well maybe not that, but I'd atleast give you a hug......?
snakesausage 3:38PM (7/19/2008)
Artie,
While I do not understand the speculative market (none of us do, unless you are a speculator) I do think that the way it works is as soon as the big guys drop out there will be a sharp plummet of prices.
LS2,
I am predicting a negative peak of $60, not sustained price. My guess is that it will stabilize somewhere around $75-$80 before continuing its historical gradual increase.
There is more negative pressure on oil price than positive:
1. Demand destruction in the US is already being seen through people driving less and buying more fuel-efficient cars.
2. China reduced its subsidy on fuel (we haven’t seen the magnitude of the effect yet).
3. Saudi Arabia will have the Al Khurais fiels online by next year.
4. Canadian oil sands will be ramping up production for the next few years.
5. Plug-in hybrids will be available in the next two years with a substantial portion of the US adopting it in the next 15 years.
6. Abandonded oil wells around the US are being brought online
7. There seems to be an immanant decision to allow at least some driling off coast and in ANWAR.
8. The credit crisis may be coming to an end allowing the FED to strengthen the dollar by raising the interest rates, which will cause the economy to weaken a little further that will cause less demand. This will set the stage for a recovery 1st quarter next year
VWsat 1:55PM (7/19/2008)
From: Rest of the World
To: USA
$4/US Gallon, non-subsidized gas is CHEAP
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J M C 3 5:26PM (7/19/2008)
From:USA
To:Rest of the world
We probably get gas cheaper because we protect (subsidize)greedy oil sheiks from even more evil Islamic facists.The rest of the world shouldn't be so smug
Andrew 7:03PM (7/19/2008)
@JMC3, you amaze me, what some people will say! Let me first start by listing the biggest oil exporters in the world: Saudi Arabia, Russia and Norway.
Now, that first one is Muslim, the others very much not. Do you think we give you even a cent off our oil? The market sets the price, and you pay it regardless of who you are.
VWSat 1:16AM (7/20/2008)
@JMC3, Andrew is right about the oil exporting countries by volume, but importing into the states it is
1. Canada
2. Saudi Arabia
3. Mexico
4. Venezuela
5. Nigeria
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
The free market decides the price. Part of the reason it is cheap in the US is the low taxes per barrel of oil and part of it is the refinery capacity of the US (due to its traditionally high demand)
Both will likely begin to shift away, taxes should increase to pay for the US deficit/debt and the demand for oil is decreasing to Russia and China as their mean income level (and thus number of cars) increases.
why not the LS2LS7? 2:01PM (7/19/2008)
I agree with those above who indicate that things really have changed. There has been a lot of change toward conservation of gas and use of other sources of energy for our homes and such. I can't predict the price of gas or oil, because it's subject to so many variables and wildly varying due to speculation, but I do know that other sources of energy have risen to levels of awareness and use that will likely change our lives forever.
Perhaps the speculators have done us a favor. OPEC has always known they couldn't make oil rise to much too fast or else they would spur investments in other sources of energy. So they were somewhat careful about oil prices for a long time, but once the speculators gained enough control of oil prices, they drove it up anyway, despite the increased OPEC supplies, jumpstarting the processes OPEC probably would rather not have started.
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bruno 9:17PM (7/19/2008)
Keep in mind Honda just replaced their number one selling vehicle, the Accord, with a new model. Think that might affect the numbers a tad? Unlike GM or Ford, they have fewer models and the introduction of their #1 vehicle in a new body style would have a disproportionate effect on sales.
Honda's Ridgeline sales are way off too.
GM and Ford make gas sippers too, they just aren't that appealing. And even the appealing ones they usually goof up a little on.
Give them a couple years, and once their best talent concentrates on the smaller cars rather than trucks, they may catch up.
ale 10:30PM (7/19/2008)
i still think US automakers have a chance, but they need to start doing stuff now, not "2010, 2011". I still can't believe GM is not bringing the Beat here, just when they need it most (especially those workers almost retiring). Bringing the Fiesta is in the right direction, but still too little too late. I know it take 18-24 months to bring something from drawing board to market, but still, I hope those boys are crackin'
Gardiner Westbound 2:05PM (7/19/2008)
The price of oil goes up a buck a barrel and pump prices rocket up within minutes. It goes down and pump prices take weeks to recognize the lower price. Hmmm...
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Declan Moran 2:20PM (7/19/2008)
The price is driven by perception, not reality.
Bad news travels around the world before good news has got its socks on.
Human nature
Artie Lange 2:31PM (7/19/2008)
Why do you think the price of a gallon should decrease simply because the cost of a barrel has decreased? The two prices are not pegged to one another What you pay at the pump is dictated by what you are WILLING to pay at the pump. Until America stops willingly paying $4 and above a gallon, the price will not drop significantly. Its basic supply and demand economics. You want gas prices to come down? Stop buying so much gas.
Clearly, enough Americans have not decided that gas is to expensive (there has only been a 5-6% decline in demand, which is easily offset by demand from the emerging markets) for prices to come down. Even if gas gets back around $100 a barrel, its very much likely that a gallon will still average in the high $3's, as Americans are unwilling to curtail their oil consumption.
Esprit bird 2:25PM (7/19/2008)
Hows about leaving it around 3.50 =)
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Southernman 2:40PM (7/19/2008)
It doesn't help if the price per barrel drops and our Congress fills that void with additional taxes. Two months ago there was talk of suspending the gas tax (I don't agree with that, btw) and yet today there's news that Congress will boost the existing gas tax from $0.18 to $0.28 per gallon in order to make up the highway fund deficit. How can things change so quickly?
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why not the LS2LS7? 5:25PM (7/19/2008)
That talk has been around a while. I wouldn't sweat it.
john riley 2:40PM (7/19/2008)
I don't know how much of the current price is based on speculation, but IIRC the big picture is that supply is not increasing in any significant way, so the _long term_ picture does not look good.
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