Gas prices falling, why?

[myelo]

Did demand suddenly decrease a tremendous amount?

yes

[Ghosth]

China was buying oil like crazy, China lost their shirt in our mortgage security's.
China has no money left to buy oil.

That plus we slowed way down on how much we were using.
Combine that with fact that speculators could no longer borrow money to leverage oil futures.

Price of oil per barrel is lower than its been in a year.

[Eagler]

the Russian economy is based on energy
as soon as she is ready to stir the pot which will shoot oil through the roof, she will
enjoy the "cheap" gas while you can, it is only temporary

why did it drop so fast? it was nothing more than a bubble - just part of our global bubble economy, nothing is based on fact these days just greed & selfishness

[CAP1]

I didn't mean to suggest that was the only reason, but I'm sure it contributed to it.

WE CUT DOWN A LOT.

didn't you notice a lot less SUV's on the road? somoene had mentioned that in another gas thread. in south hersey, i noticed a lot les of the suv's, and the ones that were still being driven, were being driven much more conservitivly. in the city(philly in my case) i've noticed a HUGE increase in those little motor scooters, and a lot more people on bicycles.

 i think chinas economy is tanking too, causing them to cut back a lot too, along with other big iol users in the world.

 of course opec'll be sure to find a way to get the price back up t hough.

[Nashwan]

In the matter of a few short weeks, we have cut usage by 38%?  I don't think so.

It doesn't work like that because few people have a fixed budget for oil.

If you have a fixed budget of $40 and a gallon costs $2 you buy 20, if it doubles to $4 you buy 10.

What most people have is a fixed requirement for oil and they adjust the budget to match. With a fixed requirement you might buy 20 gallons of gasoline a week. If the price is $2 a gallon you spend $40. If the price goes to $4 a gallon you still need 20 gallons so you pay $80.

Of course what happens in reality is some people can't afford to spend more and have to reduce consumption, some people give up the car altogether and cut out consumption, others carry on as normal, or even increase consumption. So the price does have some effect on consumption, but not at a 1:1 ratio.

Supply and demand?  Did we ever really run short?

No, because the price went so high. Ask yourself, though, what would have happened if the price hadn't gone up. If oil had still been selling at $50 a barrel last spring and summer, consumption would have been higher. Then we would have run short.

[Rash]

In the US, consumption is down about 1.7 million barrels/day over the last-year period.

[Gixer]

Drop in oil price was due to the perfect triple whammy.

1. Hedge funds collapsed killing off all the speculators. Say this is what caused it's greatest percentage loss in just three weeks.

2. Global recession oil and all commodity prices have dropped through the floor.

3. Stronger US dollar

As for oil going back over $100 and gas $4 a gallon, isn't going to happen. OPEC can cut it as much as they wasn't global demand is dropping at a ever increasing rate with fears of a Global depression let alone recession. Plus if OPEC really cut the tap when the world is fighting a recession they would get hammered politically.

I wouldn't be surprised if oil is down to $55 a barrel by Christmas and stays there.


<S>...-Gixer

[E25280]

In the matter of a few short weeks, we have cut usage by 38%?

Demand does not have to fall so much for prices to begin plummetting on a commodity.  It is all about excess capacity.  Even a small drop in demand (due to recession or whatever) means there is now a small excess of capacity.

When there is no excess capacity, the sellers can set their own price, and that price will climb until people think they can do without, at which point it will stabilize.  This is what had been happening, more or less.

Now that demand has dropped a smidge, there is excess capacity.  This means that the buyers, not the sellers, have the advantage.  Supplier X won't sell it to me for my asking price, so I will go to supplier Y, who now has extra to sell, and is willing to give me a price break to "fill his plant."  Supplier X then loses that customer, and has excess capacity, and wants to fill it -- and coaxes a different customer to take that capacity using a price break.  And so on.

So, you get falling prices.  Again, the excess does not have to be a lot to get the ball rolling, it just needs to be there.

So, yes, it is all supply and demand.

[Curlew]

I BALME BUSH FOR THE SUDDEN FALL GAS PRICES!!!!!
B@st@rd is at it again, ruining americas fabulous high gas prices!!!

[eagl]

Actual demand did NOT drop 38% (or whatever number you try to pull from the price of oil).  What dropped was the expected future demand over time.  Growth slowed.

Yes, the US is beginning to work hard to reduce actual usage and real demand, and there will be some real demand/usage decreases if the recession continues.  But the real effect is that the future growth is perceived to have slowed enough that speculators are not betting that demand will outstrip production and therefore are not driving up the price of oil on speculation of future demand.

OPEC saw this coming about a year ago even without the bank crisis whacking the economy, because the US and some other countries are getting serious about reducing their reliance on middle eastern oil.  It scares the heck out of them because their economies are based almost entirely on selling oil, so it is in their best interest to keep supplies tight to help fuel a bit of speculation.  Yea it hurt the US when the price of oil was hampering economic growth, but that means if our economy takes a dump then so will the price of oil, and their profit margin along with it.

What we'll see is supply adjustments that, combined with the eventual economic stabilization, will bring the price of oil back up to a profitable level.  Pumping a lot of oil and selling it below cost is a losing proposition so they'll just drop production until the price rises enough for it to be profitable.  And middle eastern oil is a lot cheaper to pump and distribute than oil from many other sources, including canadian oil sands and many deep sea oilfields.

[Eagler]

and all it would take is an attack, real or staged, on a rig or two in the ME and the price would go through the roof regardless of the economy or our usage reduction...look for the saudis, iran or russia to create such a scenario once the falling price affects their economies to the point they feel they have to act..

[myelo]

Some of y'all are confused about what demand is. It's not the amount of oil or oil products used. In economics, demand is the relationship between the price that is charged and the amount that will be bought at that price. In other words, it's the desire for a product, not how much of the product you need or use.

[Nwbie]

Myelo is right - simple supply and demand graph shows that

[bongaroo]

1.  Falling demand.  People were buying less with the rising cost.

2.  Fears of a global recession.  The futures price is tanking due to the worries of the global economy shrinking as opposed to growing.

3.  The US dollar is making a recovery against other currencies.

There's three simple reasons for you.

[myelo]

Myelo is right

Learn it, know it, live it.