Earlier this year, we asked if oil would reach $200 per barrel by year’s end. Short of a sudden and dramatic crisis in the Middle East, that now seems impossible. The rising prices themselves put some long-overdue breaks on consumption—and now the economic crunch is continuing that trend even as prices fall again. From the Houston Chronicle, Oct. 30:
Prices at the pump: how low will they go?
Crude oil’s fall and a drop in demand could keep rolling those numbers back
Amid the recent avalanche of bleak economic news, one small bright spot has emerged: Gasoline has gotten a lot cheaper.
After topping $4 nationwide this summer, pump prices are down more than a dollar a gallon in the past month alone and even have fallen below $2 in parts of the country, including some stations in Houston.
Prices are likely to decline further in coming weeks as plunging oil prices, a seasonal drop in demand and a historic pullback in consumption by U.S. motorists this year continue to weigh on prices.
Yet cheaper fuel may not be enough to lure Americans back to their old gas-guzzling ways. Even as prices plummeted in recent weeks, U.S. drivers continued using less gasoline than they did a year ago.
The trend reflects not only the hard economic times, but fuel-saving changes made by some Americans in response to record fuel prices. Whether it holds, however, may depend on where gas prices settle.
On Thursday, the average U.S. price for regular fell 4 cents to $2.55 a gallon, and by more than 3 cents in Houston to $2.29 a gallon, according to AAA’s Daily Fuel Gauge Report.
The national average price has fallen six straight weeks and now sits at its lowest point since March 2007, according to the federal Energy Information Administration. Earlier this month, the average slipped below $3 a gallon for the first time since February.
While pump prices typically drop in the fall and winter following peak demand periods in the summer, the recent decline is sharper than normal.
It comes after the price of crude oil — which accounts for about half the price of gasoline — has sunk to less than half its July record of $145 per barrel. On Thursday, light, sweet crude for December delivery closed down $1.54 to $65.96 a barrel.
Pump prices are also weaker because demand is down. The slowing economy has put thousands of Americans out of work and off the roads. In addition, many U.S. drivers are trading trucks and SUVs for more fuel-efficient vehicles and are taking other steps to conserve following price shocks at the pump.
The “peak oil” crowd is of course predicting that the price will soon rise again, and they could be right. But note that even the evidence they marshal in defense of their prediction implies the price will rise again as a matter of policy—not geology. An Oct. 31 Wall Street Journal piece, “Peak Oil: Are Oil Prices Destined to Rise Again?”, is excerpted on the Peak Oil News website:
Crude oil futures continued down on Friday, spooked by the dim outlook for the U.S. economy. That’s precisely what makes it likely oil prices will rebound next year.
Big oil companies are already finding it harder to maintain, let alone increase, production. Chevron doubled its third-quarter net profit, but said production fell 5.7% in the quarter, after ExxonMobil reported an 8% production drop yesterday.
Falling oil prices are only going to accelerate that trend, analysts warn, at a time when OPEC is accelerating output cuts and production declines at oil fields around the world is apparently increasing.
Big oil as a whole needs oil prices of about $82 a barrel next year to fund their plans for new investment in oil exploration and production, Credit Suisse says in a new report. Right now, the consensus forecast of about $75 oil means overall, oil companies will suspend some marginal projects, as Shell has already announced with Canadian tar sands.