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OPEC, Oil, the Market and Adjusting Lifestyles
Posted by: McQ on Monday, October 27, 2008

As the market falls, so has the price of oil.
The average retail price for a gallon of gasoline in the United States plunged more steeply than ever over the last two weeks as the economic slowdown weighed on crude oil and drove consumers off of the roads, according to the latest nationwide Lundberg survey.

Prices will likely slide more, but at a slower pace, following the "extraordinary" decline this month, survey editor Trilby Lundberg said on Sunday.

The national average price for a gallon of self-serve, regular unleaded gas was $2.7785 on October 24, a decline of about 53 cents per gallon in the past two weeks, according to the survey of some 7,000 gas stations.
I paid $2.49 last week. Interestingly, though, it appears that the decrease in price hasn't necessarily meant an increase in travel, at least not yet (of course the summer, which is the heaviest season for travel by road, is over).

Even China is experiencing less demand indicating a slowing of even its superheated economy.

As I reported a few days ago, OPEC is not happy with this situation and had, at a recent meeting, decided that to prop up oil prices, it would cut production by 1.5 million barrels a day.

The market, as it turns out, was not impressed:
Growing evidence of a severe global economic slowdown drove oil prices to below $62 a barrel today, as investors brushed off a sizable OPEC output cut.
When you see 5+% cuts in China's demand for oil, you begin to understand how serious this slowdown appears to be.

But that doesn't concern OPEC. Their only concern at this point is driving the price of oil back up near the $100 a barrel mark.
OPEC may cut crude output again this year if the 1.5 million b/d cut agreed Friday and set to come into effect on November 1 fails to stabilize the oil market, Iran's OPEC governor Mohammad Ali Khatibi said Sunday.

"Be assured that if the recent decision is not effective on the market, OPEC will take steps to consolidate the market and stabilize prices at its
next meeting which will be held in [Algeria] in December," Khatibi said, quoted by Iran's Mehr news agency in a report picked up by the BBC's monitoring service.
Two of the countries most interested in seeing the price of crude rise again are Iran and Venezuela. Both depend heavily on petro-dollars to maintain power. While they will vigorously push for an overall cut in OPEC production I'd bet they'll be among the cheaters who produce more than they should. That's one reason (knowing they're going to cheat) that they'll also be pushing for more drastic production cuts among OPEC members as a whole (thinking that even if they cheat, the cut will be enough to drive prices up and benefit them).

I have to say, as someone that travels extensively by car, the difference in the amount of traffic I've seen in the last few months as been both significant and noticeable. Much less. Have we adjusted to the presumption that fuel prices will stay higher than they have in the past? Is this a temporary adjustment or a permanent one? Or is this all being driven by economic uncertainty and not by fuel price at all?

It really doesn't matter to OPEC who will work tirelessly to ensure that you pay the maximum at the pump for your fuel. I'd suggest everyone work on the presumption that fuel prices right now are a nice anomaly, but that once OPEC figures out the right production formula, we'll see them head back up again and forever adjust our lives accordingly.
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Previous Comments to this Post 

Oh goody! We (my industry) doesn’t have to be the bad guy anymore. Now it is the GREEEEDY financial industry. Funny how it’s never the greeeeedy and power hungry
government industry that’s the villain.
Written By: kyleN

When you see 5+% cuts in China’s demand for oil, you begin to understand how serious this slowdown appears to be.
I suspect that the reduction in the subsidy on gasoline was another factor. I wouldn’t be surprised if it were raised again as oil prices slide and the economy slows.
Written By: Dave Schuler
Schuler raises an excellent point. That reduction of subsidy has been in play now for some time.

That said, though, the implication from some is that the reduction in output from OPEC had no effect at all. I’m not sure about that, thinking that the price would be going down like an out of control rocket at the moment even faster than we see it doing now, absent that output reduction.

Written By: Bithead
I wonder if OPEC really will be in such a tearing hurry to get oil prices back up. Are they really going to cry to see Venezuela, Iran, or Russia choking? They might be willing to take slightly less wealth today to knock those countries about, perhaps to the point that they are no longer producing oil at all...? Guess what that does to supply in the medium-long term? Guess what that does to the price in the medium-long term? Taking out Iran as a viable military entity would be a bonus for most of OPEC.
Written By: Jeremy Bowers
Paid 2.29 on Saturday and 2.19 on Monday at the same station, right on the interstate.
Written By: Grimshaw
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