Recent gas price plunge seems ominous

[brentspeak]

On one hand, I'm very happy to see the lower prices. On the other hand, I'm aware of just why the prices are plunging: oil companies know that people are rapidly going broke.

[Alter Ego]

1. Plus, when the economy does finally right itself, the price of gas will

shoot back into the stratosphere.

[geckosfeet]

2. I am also convinced that OPEC wants to keep prices low to discourage

the development of alternatives. This may not be the only driver but I am sure that they see the writing on the wall.

So, I think that you can thank Obama (in part) for stating his commitment to alternative energy programs during the campaign for OPEC running scared.

[snappyturtle]

15. Bingo! Two days ago my SIL informed me that ND's economy is

OK. I wanted to warn her. When oil went from eight dollars a barrel to 32 dollars many small oil companies could then afford to produce. Then, kinda like out of no where, the price starts dropping. These small companies were put out of business. I expect this is another reason. So, I'm waiting to see what happens in ND.

[Javaman]

18. yes and no. they want them low but NOT that low...

their break price is $60.60.

That's why the saudis are freaking out now and are doing the best they can to cut output.

someone else stated on this thread that when the economy rights itself again (if ever) then yes the price will shoot up.

That being said, last week the bloomberg report stated that the worlds oil supplies will start or have started to decrease 9.1% year on year (this is extraordinarily bad) but because of the recession, it may only ONLY be 6.3% year on year (which is also really really bad), so given the current state of things, there are certainly worse things to come.

we are at the end of the era of oil. There will be oil around for a long time, but it won't be enough and won't be of the current quality that we are used to. The sweet stuff. There will always be plenty of the sour stuff. However, that type of oil is very costly to refine and you don't get as much bang for the buck from it. Also it's very heavy in sulfur and other pollutants.

This is why it's such a major thing that Obama got elected. mclame and failin's dream of drilling our way out of our problem is so incredibly short sighted.

I could go on and on about the costs, exploration, and actual percentages of what we need to what we would actually be extracting, but I think you get the point.

The times are a changin'...

[Zynx]

3. They're not setting these prices. This is ominous because there is a general deflationary trend.

Oil prices don't control these prices. If they did, they would have never let the plunge in 1998 happen. People were hardly going broke then. What is happen now is that energy demand is dropping rapidly and a lot of new production is starting to come online. Prices also should never have been at $150 to begin with. That was speculative excess.

[123infinity]

6. Such "new production" is merely the lag between the high oil price and its incentive

to produce. The two are almost always 180 degrees out of phase due to the nature and logistics of moving crude oil from the ground to gas tanks.

[HereSince1628]

4. Or maybe it's just that the folks who play the market have their money sitting on the sideline

A shitload of people have pulled their money out and are not ready to get back in. When no one is buying oil futures, for whatever reason, the price which is typically "all the market will bear" falls.

[Franzia]

5. Kunstler likened it to the first stage of a tsunami.

Let's say that we are witnessing the two stages of a tsunami. The current disappearance of wealth in the form of debts repudiated, bets welshed on, contracts canceled, and Lehman Brothers-style sob stories played out is like the withdrawal of the sea. The poor curious little monkey-humans stand on the beach transfixed by the strangeness of the event as the water recedes and the sea floor is exposed and all kinds of exotic creatures are seen thrashing in the mud, while the skeletons of historic wrecks are exposed to view, and a great stench of organic decay wafts toward the strand. Then comes the second stage, the tidal wave itself -- which in this case will be horrific monetary inflation -- roaring back over the mud flats toward the land mass, crashing over the beach, and ripping apart all the hotels and houses and infrastructure there while it drowns the poor curious monkey-humans who were too enthralled by the weird spectacle to make for higher ground. The killer tidal wave washes away all the things they have labored to build for decades, all their poignant little effects and chattels, and the survivors are left keening amidst the wreckage as the sea once again returns to normal in its eternal cradle.

So, that's what I think we will get: an interval of deflationary depression followed by a destructive wave of inflation that will wipe out both constructed debt and constructed savings, scraping the financial landscape clean. There's no question that stage one is underway. But we can be sure the giant wave of money recklessly loaned into existence in just a few weeks' time will wash back through the global economy leaving a swath of destruction.

http://tinyurl.com/5jexmp

[Donnachaidh]

7. I'm more inclined to think the speculators are wary of getting busted

Remember, we had rumblings that the government was going to go after them big time. They may be greedy, but they're not stupid. They are laying low, hoping the investigations will be drooped almost as fast as the price has.

It shouldn't. Every one of them should be busted.

[meegbear]

9. My thoughts too ...

I figure that gas was about $1.50 in 2001, $1.95 seems comparable for 2008, so hopefully it'll stay that way and they'll cut the crap.

[Auggie]

10. Same here. Now if the next Congress will only take action.

[dkofos]

8. The oil companies got their BILLIONS, the speculators got their BILLIONS

Now it's our turn, to recover, so they can fuck us over in a couple years.

[Idealism]

11. Two reasons why they have plunged:

Speculation 'bid' up the price of oil to rediculously high levels ($147 per barrel), all while OPEC claimed it was raising its output to meet demand. Well something we must realize is that just because OPEC says it will cut/raise demand, doesn't mean it actually will. Another is that Russia, who exports oil close to the level of Saudi Arabia, isn't in OPEC and thus can affect prices across the globe with impugnity.

Another reason is that demand has fallen, obviously. But the drop hasn't accounted for oil losing 70% of its value since its peak this year. Which brings us back to specualtion as being much more of a reason for the drop in prices. Investors are scared because they aren't sure of when 'rock bottom' will be reached in commodities, or any market, for that matter.

[harun]

12. Catch-22

Step 1: If the economy looks like it is doing well they will forecast increased fuel demand, the big hedge funds will pump up all the oil futures.

Step 2: Because the futures are pumped up they will predict the economy will slow down because oil prices are too high.

Step 3: The economy will slow from high oil prices and they will predict the demand will be low, they will not pump up the futures.

Step 4: Oil prices are low, economy looks like it is starting to do well... repeat Step 1.

[brentspeak]

13. Bookmarking my own thread b/c of the excellent responses

Lots of good info provided here.

[louis-t]

14. I have the same sense of foreboding.

I love that $10 fills my tank halfway again, but I fear what's coming next.

[Strelnikov_]

16. Physical shortages are a possible result

This is not the early 1930's when we were the worlds KSA tapping high quality/low cost petroleum.

Today, new production development costs are $50-$100+/bbl.

This could develop in a couple of ways:

- Shortage develops due to lack of investment in new upstream development.

- Shortage develops due to collapse of petrodollar system.

As a country that imports ~12 M bbl/dy representing 30% of the worlds export market, I am betting on the latter.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x175745

Just to give you a rough idea as to where we are at present with respect to EROI, “according to legendary oilman Charles Maxwell” on The Money Show, most countries report that it costs from $55 (Saudi Arabia) to $70-90 (Russia and most of OPEC) to $90 (Iran and Venezuela) to produce a barrel of oil.

[ipfilter]

17. The price of gasoline is set by supply and demand.

You can see what the futures contracts are trading for right here.

http://finance.yahoo.com/q?s=RBZ08.NYM

Add state and local taxes and some markup along the way and you have your pump price. The price at the pump generally tracks this spot price.