Oil Prices Hit Record Lows, Provide Consumer Relief
Oct 30th, 08
Oil prices slump again, having dropped nearly 56% from the highs of $147 a barrel back in July.
As the nation is plagued by housing problems, wading through the midst of the current credit crisis, and a now realized recession, the drop in oil and gasoline prices have been a much needed relief for consumers. The United States Department of Commerce reported that the gross domestic product decreased at a 0.3 percent annual rate in the third quarter of 2008. Along with high levels of jobless claims and rising unemployment rates, falling industrial production and home building, and declining business sales as well as sales by manufacturers, there can be no question of a doubt about the state of the economy.
The one bright spot for consumers in a spate of negative news is the fall of oil prices. Approaching 14 month lows, many areas of the United States have seen retail gasoline prices under the $2 per gallon mark – after seeing prices above $4 just weeks ago. The national retail price average is $2.547 a gallon as of this writing, with a gallon of regular gasoline having fallen more than 25 cents in the last week. And just as quickly as the public was to complain of the high gas prices, we have witnessed the tirades dissipate, certainly overshadowed by the greater panic and outrage at the overall state of the economy.
Many people have attributed the recent drop in oil prices largely to the reduced demand, and that is true to a point. Monthly data for U.S. August fuel consumption, measured in terms of products supplied by refiners, dropped to 17.4 million barrels a day, according to the Petroleum Supply Monthly. That was down from 19.1 million barrels in August 2007. Oil declines can also be correlated to a stronger U.S. dollar, as oil traders will buy oil as a hedge against inflation when the dollar falls, and sell their positions when the dollar rises.
In the face of this falling demand, OPEC held an emergency meeting on October 24th, in which they announced production cuts of 1.5 million barrels per day. Whether or not the members of the organization choose to follow through on the cuts will remain to be seen as the cartel members run a dangerous balancing act in these times.
Yet it is an extremely important, if overlooked, matter that should not be forgotten. Just as modern civilization was drunk on credit and debt, even more are we addicted to oil. It remains to be seen whether demand can be largely curbed on a worldwide basis because regardless of the price of oil now, it is surely only to increase in the near-distant future. How high those prices could go will be the influencing factor for our destiny.