August 2007. You remember the month.
Oil had zoomed through $70 on its way to almost $100 by year's end, and soon there were research reports arguing that oil would top $150 or even $200 in the year ahead, on surging global economic growth.
Few knew it then, but the month also marked the start of the subprime mortgage default problem -- first deemed isolated, then sector-wide in scope, and that now encompasses every corner of the globe, in the world's most serious financial crisis since the Great Depression.
Concern over the credit crunch and an accompanying slowdown in global economic growth sent oil prices below $70 Thursday for the first time since August 2007, with crude plunging $5.04 to $69.50 at mid-day. Oil has now fallen 53% since hitting an all-time high of $147.27 per barrel in July.
The other major energy commodities also continued their nearly month-long downtrend. Heating oil fell 11 cents to $2.07 per gallon, unleaded gasoline plunged 17 cents to $1.61 per gallon, and natural gas fell 6 cents to $6.65 per million BTUs.
Oil market: All about rising supply
Economist Richard Felson said a larger-than-expected increase in weekly U.S. oil inventories played a role in Thursday's oil price drop, but the longer-term downtrend is being driven by the slowing U.S. and global economies.
"In less than six months we've gone from an oil market largely concerned about rising demand to one that's largely concerned about rising supplies, which is really quite extraordinary when you think about it," Felson said. "Oil consumption growth is slowing in the developing world and America has registered real declines in gasoline consumption for more than five months, so these factors paint a radically different oil demand picture."
Felson sees two other bearish factors for oil, through at least the spring 2009: the likelihood that Saudi Arabia will not agree to cut production at OPEC's special November 18 meeting, and the removal of many speculative-long hedge/investment funds from oil trading, due to the credit crunch.
"They'll be fewer players trading oil, and they won't be able to leverage as much, due to the credit crunch, which will decrease positions taken," Felson said. "Of course, the remaining speculative players could drive oil much lower than market fundamentals would dictate, via piling-up short positions during a bear market, essentially a reverse price distortion of what occurred during the oil bubble. (Felson believes short-term traders helped artificially boost oil's price to $147; other economists / analysts argue this was not the case.)
Oil Analysis: The lower oil price is welcome; while a price collapse would cause economic dislocations -- it would severely hurt oil producing nations' budgets, a gradual, steady decline in oil's price to $60 or $50 will help the U.S. and global economies recover by lowering one key operating cost.
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Reader Comments (Page 1 of 1)
10-16-2008 @ 2:42PM
Terry said...
This oil prices are the greatest rip off of our time and I hope they go to $12 a barrel.
10-16-2008 @ 2:44PM
JCH said...
Who would not make all of this go away if we could just have $150 oil?
Cannot have cheap oil in a growth economy.
Make up your minds. Seems an obvious choice.
And nobody is going to drill baby drill for $60.
10-16-2008 @ 3:02PM
neuticles said...
If natural gas is the way of the future and is 'so inexpensive'- then why does it cost $80/mo just to heat my 40 gallon water heater?
10-16-2008 @ 3:20PM
gumbo koontz said...
We will have alternate energy in a growth economy. Who is saying oil?? it is a thing of the past!
10-16-2008 @ 3:24PM
gumbo koontz said...
Americans is finally understanding that Big Oil had been the tail that wagged our economy from time to time... We are shunning SUVs and PickUps and waiiting for brand new hybrids and electric cars to come on the assembly lines in a year or two. meanwhile, we are nursing our gas guzzlers along at reduced drivings in a simulated fuel efficient drviing based on less mileage a year. We will bear through this rough patch of two years at most before rebounding in millions of fuel efficient cars . Big Oil will sell gasoline to much smaller gas tanks per fillup. Big Oil is DOOOOOMMMMMEEEEDDD!!!!
10-16-2008 @ 4:42PM
maddcapper45 said...
Where do you think all the material comes from to make all these energy efficiant cars, trucks, & toy's, we need oil to make everything it is wouven into our lives and we will not see it removed any time soon. Better buy gold if you have over $1000.00 in cash savings you had better buy gold!
10-16-2008 @ 5:04PM
Alfred Schrader said...
Neuticles- 80 dollars a month for hotwater means you have a serious leak somewhere. You need to set the thermostat at 120 degrees F, do laundry with cold water detergents, use water saver shower heads & faucets, place a fiberglass blanket around the tank, etc.
New system I invented uses waste heat from your fridge coils to pre-heat the tank supply.
I've been able to operate an entire house on $49.00 worth of electricity a month. Email me for more info...alfredschrader @ aol.com
10-16-2008 @ 5:33PM
Purdue man said...
The New World Order is coming. The fascist, financial, satanic, world ruling oligarchy is closer to their long planned global slave system than ever before. They own the world and all that's in it. We have been sold out by our own politicians.NAFTA, GAT. The U.N., Free Trade, The North American Union, The European Union, Phony oil shortages, The Federal Reserve System, The Central Banking monopoly, etc, etc.These two C.F.R. puppets are used to convince you that you are free and have a choice. You are not free and you have no choice. The matrix has you.
10-16-2008 @ 6:05PM
arthur lee davis said...
TO: Terry,
Believe it, There was a time when.