OPEC Leaves Oil Output Quotas in Place as Price Keeps Falling--Wa Po

[Demeter]

http://www.washingtonpost.com/wp-dyn/content/article/2006/09/11/AR2006091100163.html?referrer=email


Costs at Pump Have Dropped 42 Cents Since Aug. 7

By Steven Mufson
Washington Post Staff Writer
Tuesday, September 12, 2006; D07



Crude oil prices continued their downward march yesterday as the Organization of Petroleum Exporting Countries left its production targets unchanged and as Europe's foreign policy chief raised hopes of a peaceful resolution to the standoff over Iran's nuclear program...Signs of slower world economic growth and relatively high worldwide inventories of petroleum also helped knock the price of a barrel of crude oil to $65.61 on the New York Mercantile Exchange, down 64 cents yesterday and a slide of 17 percent from its all-time peak in July.

Oil markets are beset by "the perfect calm," said Edward Morse, a managing director and chief energy economist at Lehman Brothers Inc. He noted that anticipated hurricanes had not emerged, tightness in gasoline markets dissipated and political disruptions in supplies had not materialized.
One key factor in the price drop over the past month has been the diminishing prospect of conflict over Iran's nuclear program. A U.N. deadline for Iranian action has passed without consequences, Germany's chancellor has publicly opposed military action, Iran's former president has urged talks and Javier Solana, the European Union foreign policy chief, described a meeting yesterday with Iran's top negotiator in the dispute over the country's nuclear program as "productive."

In oil markets, concerns also mounted over a slowdown in the world economy. The prices for other commodities also declined yesterday. But Adam E. Sieminski, chief energy economist of Deutsche Bank AG, warned against the expectation that a slowdown would bring much lower oil prices. "All this talk about the oil and commodities boom being over would make a lot more sense if we were in midst of global recession, but we're not," he said. "No one is talking about a huge U.S. recession. The question is whether we will grow at 2 percent or 3 percent." That means, he said, that oil markets will remain tight at least for the rest of this year and next, leaving consumers vulnerable to a single disruption in supplies.

GIVE IT A COUPLE OF MONTHS AND WE'LL PRODUCE THAT HUGE US RECESSION FOR YOU! IT'S GOING TO BE A DEFICIT RED CHRISTMAS.

[liberal N proud]

1. As a favor to their oil buddies in the White House

They will do what ever it takes keep the price down until November 7th

[ERF]

2. The most incredible thing is that our friends the Saudis

have managed to convince the world that 65$ a barrel is a decent and low price. Not too long ago they were talking about 28$ to 32$ range. Now it is has more than doubled and somehow this is good for the GOP?

[hughee99]

3. "Do whatever it takes"?

It sounds like they're not doing anything, they're just not going to artificially inflate the price any further.

[happyslug]

4. Short-term price drops will be a constant situation with peak oil.

One of the problem with peak oil is that once peak is reached, price will NOT always go up, the trend will be upward, but you will have down ward swings do to ALL of the following:

1. Drop in oil usage do to high prices, for example people taking mass transit instead of driving do to high prices, people ridding mopeds, small motorcycles and even bicycles to cut back on gasoline usage.

2. Drop in oil usage as people just travel less, go to the stores by car less, go to work less even as vehicle stays the same.

3. Movement to places where fuel costs can be minimized, workers closer to work, factories closer to supples.

4. Traditional downturns in oil consumption, such as in August and September of each year as the oil companies want to get rid of excess gasoline stocks to make room for fuel oil for heating.

5. Recession caused by high oil prices leads to drop in oil usage.

6. Increase production from marginal fields and other sources of fuel. As these costs tend to be fixed as the price of oil drops below the cost to produce this fuel production of these fuels will stop. In this group I include not only oil fields whose cost are suddenly below a spike in oil prices, but other fuel sources such as converting coal to oil, ethanol and bio-fuels.

These six reasons will kick in over time. 1, 2 and 3 will kick in as price INCREASE as will the inverse of 6 (Marginal oil fields and other methods of producing fuels, will come into production as prices increase, increasing supply while 1, 2 and 3 decrease demand).

1, 2, 3 and 6 together will force some sort of stable price for a period of time (Like over last summer as the price tended to hold around $3 a gallon). Then do to 4, prices will start to drop (Last year we had Hurricane Katrina and then Rita, that prevented a price decrease do to both storms shutting down Gulf of Mexico oil production). This pattern I expect to occur every year.

On top of number 4, number 5 can kick in at any time and really depress the price of oil as everybody cuts back on oil do to lack of work, jobs or an inability to produce anything anyone is willing to buy. We are entering a nasty Recession as I write this thus we have all 6 factors working together to bring down DEMAND for oil while supply is only marginally affected. Together all six factors will bring down the price of oil till Spring (Or mid-winter is the WInter is harsh and a lot of fuel oil is used).