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Stuart Hampton

Oil prices are way down. The boom has bust (for now).

by Stuart Hampton | Dun & Bradstreet Editor

October 29, 2008 | 4 Comments »

Feast or famine – boom or bust as oil workers call it – is the way of the world for the oil industry.

Only a few months ago (in July) the price of crude oil was pushing $150 a barrel and Cassandras like “this is one problem we can’t drill our way out of” T. Boone Pickens were forecasting a dire future, with oil prices hitting $300 within a few years. Global demand was outstripping supply. The burgeoning middle classes in China and India and the growth of car use and industrial output in those countries were, in tandem with strong demand in the US and Europe, threatening to keep prices high, as a thirsty public demanded more crude than producers could get out of the ground or refiners could turn into petroleum products. Concerns about Peak Oil and high gasoline prices led to the cries of “drill, baby, drill” in the US. Big Oil companies like Exxon Mobil, BP, and Royal Dutch Shell were lambasted for making record multi-billion dollar quarterly profits. Venezuela’s Hugo Chavez, Iran’s Mahmoud Ahmadinejad, and Russia’s Vladimir Putin could flex their muscles confident in the petrodollars that helped support their regimes.

What a difference a few months makes.

Now, thanks to the US real estate collapse triggering a meltdown in the financial services, which in turn prompted a stock market collapse and the prospect of a global recession, oil futures have slumped. Recessionary fears have spurred or been reflected in a real decrease in demand, a decrease that is projected to stretch out into the next several months, if not longer. A US Department of Energy report last week showed that demand had fallen in 38 of the past 42 weeks. Instead of sitting pretty on the surplus end of their bounty, oil producers now fear that their commodity will flood the market, leading to a further collapse in the price of a barrel of oil.

Just before an emergency meeting of OPEC last week, oil ministers for Iran and Venezuela urged fellow members to cut OPEC production by two million barrels a day to help stabilize prices, Iran and Venezuela are particularly vulnerable to price cuts as the heavy, more sulfurous crude oil they produce have a lower profit margin than the lighter, less sulfurous benchmark crude. At the meeting Friday, OPEC agreed to cut its members’ collective output by about 1.5 million barrels a day, or about 5% of its total production. (OPEC accounts for about 40% of the oil on the world market).

Low prices have some governments, whose national budgets are based on high oil prices, very concerned. Iran wants the price to be $100 a barrel, Venezuela would settle for $80-$90. Iraq could live with $80.

Oil is now trading in the mid-$60s.

But it may be hard for American drivers to feel too sorry at the plight of Hugo, Vladimir, or Mahmoud while Americans slide into what looks to be a major recession.

The silver lining for American consumers? Maybe you can’t retire just yet, but you can perhaps drive a little farther. Gasoline prices are dipping toward $2 a gallon.

Watch this video to learn the real truth about high gas prices. Click here for enlightenment http://www.thetruthabout.com/public/266.cfm?affID=and16

Gosh if only some wise oracle had been around a few months ago to predict such a collapse in oil prices.

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