Economics tell us that markets go in cycles. The problem is no one knows how long these cycles are going to be until they happen. It's impossible to predict, and even more impossible to prevent.

 

If it were really the oil companies fault, and they were to blame for everything wrong in the world as some would have us believe, why have prices been falling so dramatically? Regardless of what people think, deflation, such as what's happening to oil prices recently, is not good for the economy. Is it as bad as inflation? Probably not, but it definitely isn't a good thing.

 

Without question, it's because demand/usage has been reduced significantly. Businesses/factories are laying off in sizeable numbers, growth has not only been curtailed, but stopped altogether, people out of work aren't driving as much, people being much more careful with their expenditures, people don't fly nearly as much, etc.... This all affects oil consumption by reducing demand and thereby reducing the cost.

Without question, it's because demand/usage has been reduced significantly. Businesses/factories are laying off in sizeable numbers, growth has not only been curtailed, but stopped altogether, people out of work aren't driving as much, people being much more careful with their expenditures, people don't fly nearly as much, etc.... This all affects oil consumption by reducing demand and thereby reducing the cost.

 

:thumb: I think you and I are on the same wavelength

Without question, it's because demand/usage has been reduced significantly. Businesses/factories are laying off in sizeable numbers, growth has not only been curtailed, but stopped altogether, people out of work aren't driving as much, people being much more careful with their expenditures, people don't fly nearly as much, etc.... This all affects oil consumption by reducing demand and thereby reducing the cost.

 

Which is absolutely terrible for the economy....People clamor that they want low oil prices, but when prices drop this fast, it's absolutely terrible for the economy.

Which is absolutely terrible for the economy....People clamor that they want low oil prices, but when prices drop this fast, it's absolutely terrible for the economy.

 

And your cure to help this ailing economy is to get oil back up to $150 barrel as soon as possible?

And your cure to help this ailing economy is to get oil back up to $150 barrel as soon as possible?

 

No, all I'm saying is that oil prices being this low isn't any better for our economy than when they are extremely high. Inflation and deflation to the extremes they're at are both bad.

No, all I'm saying is that oil prices being this low isn't any better for our economy than when they are extremely high. Inflation and deflation to the extremes they're at are both bad.

 

Oil prices are where they are as a direct result of the battered economies worldwide. I assure you that things would be substantially worse off if oil was still selling at substantially higher levels. They are at what they are right now because that's what the market dictates and it's far better than the alternative. You want to see a recession like the one that probably no one on this board remembers firsthand? Let oil prices go through the roof again too soon.

Oil prices are where they are as a direct result of the battered economies worldwide. I assure you that things would be substantially worse off if oil was still selling at substantially higher levels. They are at what they are right now because that's what the market dictates and it's far better than the alternative. You want to see a recession like the one that probably no one on this board remembers firsthand? Let oil prices go through the roof again too soon.

 

I guess we have different opinions on it. But then again, I don't things are very bad right now, so oh well.

I guess we have different opinions on it. But then again, I don't things are very bad right now, so oh well.

 

And that's what makes the world - and this board - so great.

Prices are low because of simple supply and demand. Everyone is tapped out by the financial beatdown they put on the American public to the point that people just quit driving.

 

Without question, it's because demand/usage has been reduced significantly. Businesses/factories are laying off in sizeable numbers, growth has not only been curtailed, but stopped altogether, people out of work aren't driving as much, people being much more careful with their expenditures, people don't fly nearly as much, etc.... This all affects oil consumption by reducing demand and thereby reducing the cost.

Let me first say that I appreciate the response.

 

How come low prices are because of supply/demand, but high prices are due to greedy gas companies?

 

Both are supply/demand-driven. Prices rose because A) the cost of production increased (OPEC) and B) demand was higher than needed. Now certainly prices would not be this low without a global recession, but no doubt did they would have gone down.

 

I just don't get while the low gas prices are purely supply and demand, but high gas prices are evil gas companies.

I do find it highly entertaining, however, that OPEC can no longer determine the price of oil simply by cutting production. In fact, their most recent cuts have only resulted in the price per barrel dropping lower. Apparently they just concluded a meeting yesterday in which they could come to any decision on what to do, other than meet again in a few weeks.

Nothing I enjoy more than a ticked off Arab or Venezuelan oil sheik.

Uh, ignore this right now...

I hope everyone reads that.

I hope everyone reads that.

 

 

I need to edit it some first...

This is something I asked a friend of mine to write a week or so ago in response to a discussion I had with someone who screamed "conspiracy" and other irrational thoughts. This friend is an Economist for the Army Corps of Engineers and is someone I find I trust considerably on this topic. Often I consult him on economic matters and quite regularly I find him to be insightful and more often than not, right.

 

 

 

 

I'm no expert on global energy/fuel markets, but in answer to your question these are my thoughts on the falling gas prices:

Prices haven't fallen due to any extraordinary event outside this particular market's usual price drivers; which are foreign crude production, domestic crude production, worldwide refinery capacity, inventories, seasonal variations, economic fluctuations (ie the market downturn), and speculation (meaning forecasting, not futures trading). All of these drivers have contributed, to varying degrees, to the recent price drops.

The price drop is not only related to demand, the supply side plays a role too. Refineries impact the pump price of gasoline through the volumes that can be processed, the efficiency and cost of the refinement process, the distances the unrefined inputs and refined outputs need to be transported, etc.. This year saw and next year will see the opening of dozens of new refineries, all of which contribute to lessened costs of production which pass along to consumers.

Crude oil prices, also on the supply side of the equation, are the major driver for gas prices. Crude production can be broken down into domestic production (plus foreign non-OPEC production) and OPEC production. Domestic production fell slightly in 2008, but is expected to increase sharply in 2009. OPEC production was originally planned (more on this later) to drop, but they will meet on Dec 17^th to review this decision, with the expectation being that it will be changed. OPEC, as a cartel, would be illegal in the US (and most other countries for that matter) because by design they engage in precisely the same collusion and effective 'price fixing' as many people accuse US oil companies of. They collaboratively restrict production to drive up prices, something they're only able to do because member nations have effectively nationalized oil supplies. Also this power has historically been (and I believe still is) used as a political weapon, traditionally against nations who offer aid to Israel. It doesn't help that OPEC functionally doubles as an amalgamation of some of the most anti-western, anti-US nations on earth , Venezuela, Libya, etc.). Still, even they will (likely) adapt (somewhat) to the market.

Inventories also play a major role. Crude price (once supply has been largely set by OPEC) is driven by demand, and companies demand more when their inventories are low. When inventories are higher (and forecasts show falling crude prices) demand for crude is lowered and current inventories are sold. Right now, playing off of a combination of other factors which i'll cover in a second, inventories are at a high. This in essence prolongs the benefits (to consumers) of falling crude prices.

And on the demand side, first there are seasonal fluctuations. Historically, winter/colder months experience far lower consumer demand for gas, and this one seems to be no different. This combines with the economic downturn, which obviously plays a large role as well. Both residential and commercial demand for gasoline have fallen as consumers look to reduce costs, maximize fuel efficiency, etc. which I would guess is driven less by current market conditions and more by the overall expectations that things will continue to trend downward. You also have to remember that businesses represent a huge chunk of the demand, and their expenditures can vary a lot more than yours and mine can. For reference, demand fell sharply in late 2008, and is forecast to fall by 9 times as much in 2009.

As for collusion or conspiracy between gas companies, I think this is extremely unlikely. The first and most obvious reason is because it is extremely illegal. People have gotten exorbitant prison sentences for little more than eating dinner with a competitor after a trade show and having the subject of industry pricing "come up", or for sending emails even proposing price fixing. I don't think an industry as heavily overseen and regulated as the oil industry could get away with what small companies you've never heard of couldn't and don't. Also, if there were collusion going on, I wouldn't guess the prices would have fallen nearly as far or as fast as they have. Make no mistake, collusion is going on, just not between the gas giants, but between oil producing countries.

As a final note, the oil/gas industry is highly competitive, and in all competitive industries participants function as "price takers", meaning essentially that they have very little control over the price of their product. It's set by the market and any lower would eat away margins and profitability (an thus investor interest, further profitability, and so on), and higher would destroy competiveness. This is even more pronounced when there is little differentiation in the products offered by all competitors. In other words, gas is gas, and the primary means of competition is prices; if yours is more expensive than someone else's, someone else will take all of your business. Open your books to chapter 11.

Anyway, maybe I'm missing something (probably), but these are the price drivers as far as I can tell. Again, I'm no expert, but there you have it.

Now it seems less hopeful. Keep the smileys. :p:p:p:p:p:p:p:p