November 21, 2008

Oil Closes Below $50 Per Barrel

According to the New York Times, oil closed below $50 per barrel on Thursday. The last time oil closed below $50 dollars was in May 2005.

The article also says that some analysts are predicting that oil come go as low as #30 to $40 per barrel.

While this is good news for consumers at the pump, it poses some risks that oil companies will not invest the necessary amounts into developing new resources which could lead to higher oil prices once the economy starts to rebound.

For me it shows how just a small percentage decrease in oil demand can cause a large decline in prices. As the article notes domestic oil consumption is expected to fall by about 1.1 million barrels of oil per day this year, about a 5.4% decline. Most sources attribute the decline to the failing economy but without the contribution of 647,000 barrels per day of ethanol production I don't think we would be seeing as sharp of a decline in oil prices as we have.

That is not to say that ethanol alone can solve our energy problems, but it does show how a combination of biofuels, conservation, and new technologies (imagine a fleet of hybrids powered by E85 or biodiesel) can have a large effect on the price of oil.


Anonymous said...

You're right. All of the offshore oil drilling OK'd by Pres. Bush and Congress in recent months is unlikely to be financially viable with expected returns this low. Meanwhile, analysts are wondering whether we'll return to the 1980s, when low oil prices undercut alternative energy.
The nation needs to get serious about energy security.

Michael A. Gregory said...

With mandates in place a repeat of the 1980s shouldn't happen again unless the government changes course. And whether or not that happens depends on public opinion and whether or not the government has the courage to follow the course that it has laid out.

I think the drop in oil prices is a short term thing. Some of the lower margin forms of oil production such as tar sands will most likely get scaled back cutting supply. OPEC will also surely cut production at some point to stabilize prices in the range that they need them to be.

Anonymous said...

I also think the drop in oil prices will not be long term and so am making the most of it right now. We are seriously looking into alternate fuels for next year - be it a vegetable oil and converting our current car or looking at an electric car.

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