Supply and Demand: Oil Prices Dropping
Â Youâ€™ve probably noticed oil and gas prices are the lowest theyâ€™ve been all year. Demand has slipped not just here at home, but around the world. Even Chinaâ€™s demand is showing signs of cooling.
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 cartelâ€™s president blamed speculators and said there was not much OPEC couldÂ 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 highÂ 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. Itâ€™s also a confirmation that basic rules of supply and demand still workÂ to determine the cost ofÂ commodities like fuel. Of course lower fuel prices would be even more welcome if not for the globalÂ economic downturn.
Were fuel prices a contributor to the economic crisis -Â a perfect storm of the housing creditÂ and oil bubbles? Iâ€™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.Â High fuel costsÂ 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 fromÂ government transportation agencies and commercial groups like AAA thatÂ AmericansÂ were curtailing driving, driving less that they had the year before,Â indicating the first decrease in driving inÂ decades.Â In any case, the oil market is finally reacting to months of run-ups, where weÂ found ourselves paying over $140 for a barrel of oil just a few short months ago.Â We stopped buying as much, and the price slips.
Now OPEC,Â the largestÂ oil cartel,Â may attempt to flex its muscleÂ to prop up falling oil prices and protect their profits, byÂ purposely reducing oil supply.Â
IsÂ it possible to demonstrate more clearly the need to find alternative supplies for energyÂ than this? Is it possible to demonstrate more clearly the effect ofÂ energy conservation than this? We all participated inÂ 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 reduceÂ prices. It doesnâ€™t take years, as predicted by politicians from each side. Speculators and cartelsÂ are discouraged when they hear the largest customer has decided to shop around a little.Â Sellers tend to sweeten the deal in order toÂ keep the customer.Â Itâ€™s less about actual drops of oil, and more about managing human greed. Letâ€™s not be lulled back into old habits by lower prices.
Letâ€™s also remember that relatively small changes in demand led to fairly substantial changes in price. Itâ€™s true that Americans are driving less than last year – but itâ€™s only by a small percentage.Â Look around, there are cars everywhere – moving around all hours of the day. Americanâ€™s havenâ€™t abandoned their cars, they are just using them a little less, or using them a little more efficiently. Iâ€™d like to think we contributed, however slightly.