Why are gasoline (and oil) prices so low — and where are they headed?Posted by
Here’s the price/supply curve, from theoildrum.com, I posted in another thread:
There are a great many factors in play I don’t pretend to understand, but based on empirical data we seem to be at a point on the curve where a small change in production makes a big change in price.
Some sources I’ve read indicate investment has greatly declined in developing new oil supplies to replace the current ones in decline. To me, that would shift the vertical part of the curve to the left and we should expect a return to higher prices.
I saw on TV (60 minutes) that the Saudis need the price of the barrel to be $55 per barrel to support their country and they want $75 per barrel. At one point this is the price that is going to be even right now is cheaper for some strange reason. They show the new oil plants and the are using sea water from 100’s miles away to pump out the oil in the middle of the dessert. Ahh!! And I was forgetting that they want to make oil a "cleaner fuel" so the green people do not feel bad of using a gas car. They say that they are investing in solar power because they are planing to sell electrcity to the west. I wonder why idf the have so much oil they will invest in solar plants to export elctricity.
I have heard that the drop in oil prices is demand driven. Does anyone have a fix on how much less oil we’re using than 2004 or 2006? That explanation doesn’t ring true. Or, at least it would only account for a portion of the drop.
Here’s another bit of info to further confuse the issue. From report out today.
http://www.msnbc.msn.com/id/28172888The trade deficit rose to $57.2 billion in October, from an imbalance of $56.6 billion in September. Analysts had been looking for the deficit to decline to $53.5 billion on lower oil prices. Oil prices did drop by a record amount, but that was offset by a record surge in the volume of oil imports.
The dollar strength or weakness has a lot do with oil prices too apparently:
Weak dollar outweighs IEA report on weak demand; Oil prices near $49