$2.33 a Gallon Gas Scares OPEC into Cutting Production
By Randall | October 24th, 2008 | Category: Economy | 3 comments 1,344 views | 3 Comments » |
Driving to work today, I sighted something I hadn’t seen in quite a while. The price of gas at one of the local gas stations had reached $2.33 a gallon. Living in the midwest, we have some lower gas prices than other locations, but this was still quite a drop from the $4.00+ price tag I had seen only a month or so ago. As everyone around us had done, we had cut back on travel and fuel use to conserve money. It apparently worked. Maybe too well.
Earlier today, OPEC ministers met and decided to cut production by 1.4 million barrels/day in response to the continuing decline in both price and demand for fuel. The worldwide economic slowdown has caused a huge drop in demand for fuel, as people around the globe try to conserve money and choose alternative transporation options, such as car-pooling or public transportation.
This decline in demand has caused the price of a barrel of oil to fall from a historic height of $140/barrel in July, to a low of around $65/barrel currently. The OPEC nations had calculated their budgets and earnings based on a continuing average price around $95/barrel, and this new low in price has them speculative on further price decreases.
Back Up Where We Belong
OPEC is cutting production in an effort to get the price back up where they feel it ’should’ be, and to forestall a further decline. There is a real danger however that the demand will continue to hold at current levels or even possibly drop. This could cause OPEC to cut back production even more, and start the whole chain all over again.
While the decline in price is a good thing, it can still have some unintended consequences. The push for ‘greener’ fuels and transportation is mainly caused by the high price in existing fuels. If the prices drop back to pre-rise levels, the momentum for ‘greening up’ may stall.
Some initiatives such as shale-oil removal, drilling in undesireable locations, and other less-than-profitable alternatives were only alternatives if they made money. Oil dropping below $70/barrel puts these back in the negative zone, and could make the R&D money dry up, at least until prices rise again.
I’m as glad as everyone that the price of fuel is dropping, but we need to continue to look down the road, and make sure we’re not distracted so much by the new prices that we miss the turn-off for sustainable, renewable fuels.
Hey Randall,
I’m reading the post and I can relate given the out-of-control gas prices here in California. I actually work for a company that’s trying to design a product to help people get out of debt. A lot of the people we talk to want to escape from the red but in a way that is still “green.” You mention carpooling and taking public transportation, but are there other things you would recommend people do?
Thanks.
Scott Crawford
GoalSpring
@Scott,
I’m not sure I have anything else to suggest on transportation. The reason OPEC is cutting production to drive the price up is that everyone has cut almost all but necessary travel out of their budgets. That still leaves NECESSARY travel. Going to and from work, there’s only so many ways to do it. With the weather getting colder, you’ve got to be pretty hard-core to do human powered travel (biking, walking/running).
Switching to more gas-efficient vehicles is one idea, but it might not be worth the overall cost, now that the price has gone down. Recouping your investment may take years if the price doesn’t go back up.
Randalls last blog post..$2.33 a Gallon Gas Scares OPEC into Cutting Production
Yes, the prices are down, (right now I can get it for $2.09). I try not to adjust driving habits much. I feel that cutting down our consumption is great all around. If OPEC has to cut production even if that does bring prices back up some it is still good that we are using that much less.
BTW, I am also slightly influenced job wise for oil to be at a decently high price. I am glad to see it down, but keep it around $65 a barrel, not $100 or $40. Either way there is too much and worries me. Some of our projects do include oil sands and shale oils.