Fuelishness! -- The FuelClinic.com Blog

Supply and Demand: Oil Prices Dropping

October 22, 2008 · · Filed Under Eco-Driving, FuelClinic, News & Reports, Oil Industry, Oil Refining 

 You’ve probably noticed oil and gas prices are the lowest they’ve been all year. Demand has slipped not just here at home, but around the world. Even China’s demand is showing signs of cooling.

Source: IHT.com 

At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.

But now, panic is gripping producers as prices drop. Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.

OPEC is worried that prices are going to slip too far. This, of course is great news for consumers, who have been suffering for months paying balooning prices at the pump. It’s also a confirmation that basic rules of supply and demand still work to determine the cost of commodities like fuel. Of course lower fuel prices would be even more welcome if not for the global economic downturn.

Were fuel prices a contributor to the economic crisis - a perfect storm of the housing credit and oil bubbles? I’m sure that high fuel prices helped push consumer confidence down. How can you be optimistic about weathering your other economic problems when every day the price of fuel rises, and never seems to fall. High fuel costs may have pushed us over the economic edge we have be teetering at for the last few years.

Early in the year there were numerous reports from government transportation agencies and commercial groups like AAA that Americans were curtailing driving, driving less that they had the year before, indicating the first decrease in driving in decades. In any case, the oil market is finally reacting to months of run-ups, where we found ourselves paying over $140 for a barrel of oil just a few short months ago. We stopped buying as much, and the price slips.

Now OPEC, the largest oil cartel, may attempt to flex its muscle to prop up falling oil prices and protect their profits, by purposely reducing oil supply. 

Is it possible to demonstrate more clearly the need to find alternative supplies for energy than this? Is it possible to demonstrate more clearly the effect of energy conservation than this? We all participated in the grandest supply and demand experiment of modern history.

Conservation works – and works quickly, without any new technology required. Finding alternative sources of energy, or just stating the intention of finding alternative sources of oil, also works to reduce prices. It doesn’t take years, as predicted by politicians from each side. Speculators and cartels are discouraged when they hear the largest customer has decided to shop around a little. Sellers tend to sweeten the deal in order to keep the customer. It’s less about actual drops of oil, and more about managing human greed. Let’s not be lulled back into old habits by lower prices.

Let’s also remember that relatively small changes in demand led to fairly substantial changes in price. It’s true that Americans are driving less than last year – but it’s only by a small percentage. Look around, there are cars everywhere – moving around all hours of the day. American’s haven’t abandoned their cars, they are just using them a little less, or using them a little more efficiently. I’d like to think we contributed, however slightly.

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