Gas Prices are falling right about now. Oil is pushing below $50 a barrel as OPEC is apparently not curtailing production fast enough to sustain price levels and has refused options to call an emergency meeting to do so.

Many theories exist as to why OPEC is not acting more to curtail production. One is that Saudi Arabia is trying to punish Iran and other producers for their confrontational attitude and the attention it draws. Another is that western oil companies have figured out how to produce shale oil profitably as low as $50 and that has frightened OPEC planners which are hoping lower prices will drive out these upstart producers before they get even cheaper.

It's a $1.99 a gallon on S. Saunders St
http://www.raleighgasprices.com/

1/19/2007 4:31:57 PM

well whatever is causing it, its always nice to have lower gas prices

1/19/2007 4:32:35 PM

I wonder if Hugo Chavez's absolution of power will have any affect on this? Should it?

1/19/2007 4:33:43 PM

what is interesting is that i was scanning through the radio mid morning after class and heard "oil prices have been going down but we havent seen this at the pump yet"

then i saw 1.99 and was like
Either the guy was wrong or things could get even better.

1/19/2007 4:40:35 PM

its a sad day when 2/gallon is a good price, shit used to be 1.25 when I turned 16

1/19/2007 4:46:47 PM

I was about to post asking you to put a graphic up because it seemed like prices should be down from where they are (was 2.23 still yesterday in Holly Springs, probably down today, I haven't ventured out)...but then I read somewhere it takes about 4 weeks for oil prices to reflect in gasoline prices.

Is this just because of the warm weather? If from here on out, winter gets bitter cold (well, normally cold) will rebounding prices finally tip this upsurging stock market into the correction it is due for?

1/19/2007 4:56:07 PM

^

Warm weather helps, but I think that demand simply turned out to be much more elastic than people though. Inventories are all higher than expected including gasoline.

Also, the Saudis are of course helping us out as Lonesnark pointed out. My guess, however, is that they are more worried about slowing global growth amid a flurry of new discovery.

See they are in a dilemma.

They are the lowest cost producer.

If oil prices are high they make a huge margin but it also both
A) Encourages new competition

B)Slows global demand growth - Unlike most commodities oil demand is dynamic. The price today can effect the demand tomorrow.


So suppose that the price gets to high, you could get more conservation activity from consumers and more exploration from suppliers coming together to cause a price collapse in the future. You don't want that. So its better to keep prices steady.

1/19/2007 5:02:46 PM

To back up what some of what kwsmith said:
U.S. oil consumption fell 0.16% in 2005 although the economy grew 3.2% and the population grew 0.91%. Admittedly, some of this reduction was due to spot shortages after Katrina and the numbers are not yet available for 2006, but here's for patience.
http://www.greencarcongress.com/2006/06/us_oil_consumpt.html

1/19/2007 7:25:02 PM

invest in the stock market. it will be at $70 a barrel for sure by summer.

Jokey Joke

[Edited on January 19, 2007 at 11:31 PM. Reason : .]

1/19/2007 11:28:04 PM

It seems like people/businesses as a whole are starting to make rational energy decisions.

SUV sales are down, people are concerning themselves with energy conservation, and I've read a number of articles about how many established businesses are investing in green technologies. Heck, Walmart just built two new stores featuring wind turbines and biodiesel heating.

I hope this dip doesn't affect the trend.

1/19/2007 11:55:20 PM

Quote :

" its a sad day when 2/gallon is a good price, shit used to be 1.25 when I turned 16"

shit dude when i was 16 that shit was like $00.95, im old

1/20/2007 12:02:53 AM

You're a year older than me, and I vividly remember filling up my first tank with $.89 gas.

1/20/2007 12:11:01 AM

I remember Claire McKaskill (D-Mo) in a debate during her campaign saying that gas prices were low during the campaign because six major oil companies owned all the oil for the US and is dropping prices to keep the republicans in power and how prices were going to go up after the election.

1/20/2007 12:23:19 AM

did you not look at the graph? It did go up after the election

1/20/2007 10:50:34 AM

The Gas prices will go back up. If the US starts to stock pile more crude oil for our reserves. Other country's will follow suit and that will drive up the gas price. We should just get used to gas being around 2.50 - 3.00 Long gone are the days of 87cents for a gallon of gas.

1/25/2007 11:40:54 AM

Yeah, I saw gas for $1.989/g yesterday, the first time below $2/g in years. I figured something would happen before it dipped below $2. We got close to dipping below $2/g twice in the past and the prices shot up a good $0.30/g in what seemed like a weeks time on both occasions.

Looks like the price of oil is ratcheting up again so I don't expect this to last.

It's still averaging around $2.099 at most gas stations I see. I'm sure that Kangaroo station in Cary is still at $2.239/g.

1/25/2007 12:02:17 PM

wolfpack1100, if you believe that then you should borrow all the money you can and buy gasoline futures. If it goes back up in a month, lets say, that would be increasing your money 50% in a month, for an APY of about 12,874.63%.

Quote :

"Looks like the price of oil is ratcheting up again so I don't expect this to last."

I don't know everything, but I suspect the $2 +/- $0.30 range is defensible. It all ultimately depends on OPEC. If they fail to keep up with demand (as in 2005 to 2007) then prices could float ever up. If they fail to curtail supply then prices could collapse, $0.87 per gallon would return to the detriment of all those concerned.

1/25/2007 12:15:25 PM

The price of gas will not hit 85 cents i promise you. I am not playing futures with my own money its to risky right now. I will stick to regular investments that will make money but thanks for the idea. You might want to play futures with corn. It will keep going up as stupid people try to make ethonal out of it.

1/25/2007 4:01:36 PM

$0.78 the day i turned sixteen.

1/25/2007 4:08:50 PM

wolfpack, I was mocking your statement "Gas prices will go back up". You seemed so confident! I'm glad to see now that you realize you are probably wrong.

Which begs the question, if I obviously believe gasoline prices will come down in the future I would not invest in corn futures, so why did you suggest I should?

Now we've been given another statement: "The price of gas will not hit 85 cents i promise you". Again, why are you so certain? It happened just 9 years ago, why is today so gosh darn different?

The fact is, all markets operate in boom and bust cycles, oil is no different. It may not be for 20 years, but the price of oil will crash someday.

1/25/2007 4:46:25 PM

^when the world is not longer completely dependent on it.

1/25/2007 4:47:37 PM

Quote :

" "The price of gas will not hit 85 cents i promise you". Again, why are you so certain? It happened just 9 years ago, why is today so gosh darn different? "

well, there's the fact that the dollar has devalued quite a bit in that 9 year span.

1/25/2007 4:56:50 PM

yup

1/25/2007 4:59:39 PM

True. But to stand the argument, the price paid for oil during a price collapse has very little to do with value, it is largely arbitrary. You see, during a sharp crash or a sharp rise the market is not acting rationally.

In the bottom of 1998 oil was selling for $8 a barrel, it cost more than that to ship it in some cases (you have already delivered it, so no fair attempting to mitigate your costs). What we have in such circumstances is loss mitigation: better to sell it for something instead of nothing. In such a mode it is largely irrelevant what "something" is. If the crash is really ridiculously emotionally devastating it could go less than even that, even today with its cheaper dollar.

[Edited on January 25, 2007 at 5:06 PM. Reason : sp]

1/25/2007 5:06:07 PM

^^^ that and China is demanding more. no way we'll see $0.85/gallon gas again...MAYBE, MAYBE inflation adjusted.

Quote :

"shit dude when i was 16 that shit was like $00.95, im old"

I've filled up for $0.79/gallon back in the day.

of course, my car got like 12 mpg.


^ there is truth in that, but we won't see $0.85/gallon gas again.

[Edited on January 25, 2007 at 5:08 PM. Reason : asdfasd]

1/25/2007 5:07:22 PM

theyre probably going down now in preparation for a massive ass-rapeage here in a few months

1/25/2007 5:07:30 PM

I'm glad you see truth in my statements, Duke. But let me drive it home a little further.

Oil suppliers have already spent large sums of cash getting oil into the distribution system where they hope to sell it to buyers at a profit. Well, every day their oil sits on the dock is costing them money, but what if there are not enough buyers to take all the oil for sale? Well, dumping it into the harbor is forbidden by the city, so your only hope is to dump it for whatever you can get and bring an end to the hemorrhage of cash being paid for environmentally friendly storage. Hell, it would even be rational to give it away or even pay the customer to take it away from you.

Now, that would be a truly apocalyptic scenario, such after a limited nuclear exchange or a sudden and unexpected loss of political stability in a major consumer such as Europe, Asia, or America.

In 1998 the losses were fundamentally limited by time, Asia's recession did not hit overnight but over a matter of months. Had it been overnight I suspect we might have seen within a week or so negative numbers on the NYMEX floor.

1/25/2007 5:24:13 PM

the long term (several decades to half a century) trend is up because the emerging markets are emerging fast - but there comes a point where too much pricing power lends to entrances of new technologies and new players.

if the net present value of setting up wind turbines and solar panels is lower than that of buying nonrenewable things to burn, you won't do it. but if you learn that the effort is worth the near term cost, because the cost of the things you burn is so high, than you will start to go green. of course windmills and solar panels will come much later -- right now its biodiesel/corn ethanol and nuclear.

i think the powers that be -- the Saudi Texas royal families -- are learning the ball has already been set in motion to go green. they're coming to grips with the fact that you can't keep calling scientists names like "liar" and "commie", and that you can't fool all the people all the time.

like species, economic systems too can suffer from genetic bottleneck. la sez faire is as self destructive as communism. there comes a point -- usually post-adolescence -- when ideological genetic bottleneck gives way to reality. when systems begin to mature and look inwards they learn how to beneficially tradeoff near term marginal gains for long term austerity.

but like i said, the long term trend will be up. fastly emerging economies will be the key drivers of demand. prices won't begin to go down permanently until the people in Mumbai and Shangai can't see their own hands when held up in front of their face, because their air is so polluted.

1/25/2007 6:00:09 PM

Quote :

"I remember Claire McKaskill (D-Mo) in a debate during her campaign saying that gas prices were low during the campaign because six major oil companies owned all the oil for the US and is dropping prices to keep the republicans in power and how prices were going to go up after the election."

How you can vote for someone who thinks like Salisburyboy is beyond me.

1/25/2007 6:24:57 PM

if Dennis Kucinich can get elected (and even get support as a Presidential nominee), ANYTHING can happen in politics.

1/25/2007 10:26:40 PM

Quote :

"la sez faire is as self destructive as communism."

If by "self destructive" you mean liberty breeds liberal democracies then you're right. It doesn't kill itself in any way, but it gets eaten by other forms of organization. This is because while everyone has an interest in maintaining a free market it isn't enough to make it a voting issue. Meanwhile, the benefits acrued to politically connected individuals by destroying the free market is huge.

Other than that, were you trying to suggest that a free enterprise system does not take into account future costs and benefits? Let me know, because you need to be put right.

1/25/2007 10:47:13 PM

laisez faire economics has little to do with creation of liberal democracies.

1/25/2007 10:57:55 PM

Shark how am I certain, simple Crude oil is alot like Land they aren't making much of it these days. The cost of having to go and dig for oil pump it and refine it will get more expensive hence the price will go up. Also over the course of my life I haven't seen many things go down in prices to where they were 10 years ago. Why invest in cron because its going at about 4.25 to 4.50. And it will continue to increase which will also drive up the price you pay for meat. You seem like you believe gas will go back down to under a dollar. Please provide some statement of facts that support this.

1/26/2007 8:43:14 AM

I explained it quite thoroughly. During a market crash "price" has very little to do with "value". Like I pointed out in 1998, it cost far more than $8 to drill/process/ship a barrel of oil, yet that's what the price being paid was.

So, my evidence that it will get that cheap is two fold: it has happened many times before and economic theory predicts that it will happen again.

Now, it is a game of chance. It is possible that all future market collapses will be small, on the order of 1998. But in the event of a sudden war or economic crisis occurs, we could easily get a correction large enough to make oil free.

1/26/2007 9:52:57 AM

Bttt

Hey man, where do you find those graphs of gasoline price versus crude? What are your thoughts on the current price, it seems to have outstripped the price of crude by a lot. Where did the sudden increase in demand come from, and why haven't the gasoline produces been quick to meet that demand?

[Edited on April 18, 2007 at 11:43 AM. Reason : a]

4/18/2007 11:42:39 AM

The graphs are from here, check the bottom right of the page:
http://www.wtrg.com/

A few months ago when OPEC ordered production cuts, traders expected OPEC to unravel and this expectation drove prices down to $50. Regretfully, OPEC as a group has held together and the production cuts were met. As such, supply fell while China continued its double digit growth in consumption.

Now, historically when OPEC as a cartel breaks down is in its most financially strapped members, such as Venezuela and Iraq, which incenses other members into cheating. Regretfully, those countries most prone to cheat are today largely incapable of doing so. Chavez has ravaged the state oil enterprise to such an extent that it can barely meet its quota, much less exceed it. Similarly, Iraq is suffering repeated supply disruptions to the point of being several magnitudes shy of its allocated quota.

To a certain extent, it seems we will just have to wait to see how it works out. It may be that OPEC has finally suceeded in cornering the market for oil and will be able to keep prices above $50 for the next decade and beyond. If so, get used to $2.50 gas.

There is another escape that needs mentioning. If a large oil producer, such as Mexico or Russia, manages to de-regulate their energy sector and allow western oil firms to enter then within a few years oil production would skyrocket. This is because these countries today have what are called State Run Monopolies, which are investment poor and technologically backward. Fixing this would quickly and dramatically boost oil production, lowering prices and driving down OPEC production. As OPEC quotas fall the odds of cheating rise.

[Edited on April 18, 2007 at 1:33 PM. Reason : .,.]

4/18/2007 1:28:04 PM

So its a wait and see summer then eh?

Awesome. Just awesome.

Thanks for the updates Snark, they're quite helpful.

4/18/2007 3:58:13 PM

Well, if you want the short term then yes, just wait. Gas prices always go up around this time. It is due to the summer reformulation of gasoline as mandated by the EPA to keep places such as Los Angeles free from smog.

I don't know why we can't just require the use of reformulated gasoline in places such as Los Angeles, letting the rest of us keep the 15+ cents per gallon it costs. But, as I said, just wait. Holding everything else equal, winter formulated gasoline returns eventually

But that's just 15+ cents, to get the rest back read my other post for longer-term impacts

4/19/2007 12:10:00 AM