What is behind the plunging price of oil

Do not you think, but we have an increase this week. The plunging price of oil, which led OPEC to announce 1.5 million barrels a day production cut, has put money into the pockets of the recession, consumers worried. “It follows that it will be some effect on spending,” said Francisco Blache head of commodities research at Merrill Lynch London.
Oil demand in the U.S. has been reduced by 10% over the next few weeks, continuing a trend throughout the year. According to the U.S. Department of Transportation, Americans took 15 million fewer miles in August, or 5.6% less than they did last year. DOT said it was the largest ever year to the decline in a single month. Over the past 10 months, Americans have driven 78 billion miles less than in the same 10 months the previous year – sure evidence of what economists call “demand destruction.”

Coping with $ 4 per gallon of gasoline has dramatically altered patterns of conduct, perhaps permanently. “We are seeing changes in habits,” said Julian Lee, senior energy analyst with the Center for Global Energy Studies in London. “Sales of large gas-guzzling vehicles have collapsed. If we see that the exchange rate becomes a big problem in the longer term to long-term demand destruction.” In the short term, the simple math. The average driver is about 12,000 miles per year at 20 miles per gallon, said Ken Medlock, a fellow at the Institute of Energy Baker at Rice University in Houston, Texas. If gasoline fell 1.50 U.S. dollars to the $ 900 average driver Joe saves a large amount of stimulus package. According to Ed Readme, director of UCLA’s Anderson Forecast, the current price slide could drop another $ 200 to $ 250 billion into consumers’ pockets, because from the second quarter for personal expenses for fuel oil and gas Other energy was approximately $ 442 million on an annualized basis. By way of comparison, Wal-Mart U.S. is stored in $ 240 billion in the last fiscal year. “For consumers, the help is welcome,” said Medlock. And because the U.S. is beyond its peak of the summer driving season, there is too much of an incentive to drive a lot more just because gas prices have declined.

The fall in global demand, particularly in emerging markets, is the reason that the oil market did kill the road of OPEC to cut production. Oil fell again to 64 dollars a barrel – its lowest level in more than a year. For months the leaders of the oil-rich countries have seen nervously as world oil prices have fallen more than 50% of the all-time high in July of 147 U.S. dollars per barrel.

All spells that the crisis in OPEC. Since last month the oil ministers of Iran and Venezuela – two of which are heavily dependent on oil revenues – have led fellow OPEC members to make big enough cuts in production to reverse the fall in prices, both in favor of a cut of two million barrels, when they arrived in Vienna on Thursday of OPEC emergency meeting. OPEC set oil production quotas, and his tactic of setting their combined production for years has greatly influenced world prices, from the 13 OPEC members account for about one third of total world oil supplies.
Another concern is imminent for officials of OPEC: A possible slowdown in China, whose economy increased this decade has sent an explosion of oil prices and helped ignite a new battle for oil exploration and drilling in many countries Developing from Ecuador to Angola, whose economies have grown along with oil prices. “OPEC needs to see China maintain its growth rate,” Robert Johnston, director of energy for the Eurasia Group in Washington, said before the OPEC meeting. Without the continuation of China for new thirst for oil, OPEC production cuts will have a limited impact.

If oil demand is beyond 10% around the world, why the prices are more than 50%? It is not a one to one relationship – small swings in demand can cause large swings in prices, said Blanch. And the oil-Revelación is the other side of the credit crunch. The banks, investment banks and speculators have withdrawn money from oil futures, in addition to driving oil prices, which is one reason why prices have fallen much faster than demand.

Despite the speed of the oil boom, the price crash has shaken the OPEC countries, which seem to have assumed that high prices were here to stay. Nigeria and Iran have set their budgets according to prices of around $ 80 per barrel, Qatar and the expectation was $ 90 per barrel. “Producers quickly became accustomed to $ 100-plus prices,” said Lee. “They thought of it as normal and justified. They seem to have very little memory.”

Several oil analysts – who predicted earlier this year that oil would reach $ 200 by year’s end – have said that oil could drop to $ 50 per barrel. Blanch of Merrill has linked oil to $ 90/bbl for 2008 last month, but you can easily see $ 50/bbl if a global recession. What could be more good news for drivers next year. “This is where you can see that people are using disposable income to do things like going on vacation,” said Medlock. That’s assuming you have a job to get away from. But one thing low oil prices can not do is get the U.S. its credit crisis.

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One Response to “What is behind the plunging price of oil”

  1. Josh Maxwell Says:

    I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.


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