Speculation and the cost of oil

Is this what your looking for? I got this from gasbuddy.com. Looks like gas was a little over $2 a gallon when crude was about $50 a barrel.

 

Hi Syclone,

Not so sure the gas usage reduction was so infitesimal. There were many media stories about mass-transit districts being overwhelmed by increased ridership. Just think about all the Prius and small cars since 2006 too. Each Prius is a 50 percent reduction, on average of fuel consumption. And many small cars are a 20 percent reduction over the previous midsize V6 car.

The reason the drop was so sharp was threefold, I think. Conservation (prius, other small cars, mass transit, carpooling), speculators getting out, and Recession (fewer drivers on the road). I know around here the morning rush is dramatically less crowded since June. And the road I drive has no alternative mass transportation. The nighttime is about the same, but that is probably due to reduced hours. People coming in later, going home earlier. I can't rank which had the most effect. Clearly, speculators are getting out because they see the recession happening, and know they wont be able to push the price up any longer, due to reduced usage. So, one might just say recession is responsible for the reduction in speculation too.

 

Oil will go up again no doubt, but then it will plummet again....probably around 90% of all the oil bought is eventually used by the poorest people in any country - in the western world, the middle class are the big purchasers. If oil-derived products are too expensive for these people to buy, then the demand drops out of the market, and the price drops like a rock. It happened in the 80's, its happening now. Just IMHO.

 

It only takes small changes in crude demand to send prices up or down when supply is tight as it has been for the past 5 years. The response of consumers to escalating oil prices was very small. However, the response of oil demand to a sinking (or rising) economy is much larger. The global economy drives jobs, travel, and energy use for production. It is the bigger hammer. When it sputters demand declines more rapidly than when gasoline prices increase a few dollars per gallon.

Some seem to think this is a mystery, but it has worked that way for decades--albeit with many "artificial" supply restrictions related to war/political events interspersed. This is why I've stayed out of oil stocks for the past two years (all stocks actually.) I've been expecting this recession and for oil to get hammered when it came. Even after the credit crisis hit folks wrongly assumed that oil demand would continue rapid growth during what was obviously going to be a recession. Folks were still in denial about the economy until September, over a year after the credit crisis first became apparent.

While I expected a short term drop (short could mean a year or more), long term the same trends are still in place that led me to predict $50 oil when folks thought $25 was high. I don't know how to project values for the peak or the bottom because they are driven by market psychology. But I can see the drivers in place for longer term trends. (And that's why it would be a major mistake to build substantial additional refining capacity in the U.S.--I expect gasoline/diesel demand to stagnate/decline over the coming decade as we begin picking the low hanging fruit for fuel economy.)

 

That may have been the case in the US, or at least some parts. Or even all of the wealthier nations. Most of the world is not that wealthy, however; and most of the nations of the world were going through huge economic crises before the US over the fact that the price of gasoline had gone up so high, that they could no longer afford to buy food (driven there by diesel trucks) or could no longer afford to drive to work.

This is not "Oh damn, I can't fill up my SUV up to drive to work" as might have been the case here in the US. It was, for example, more like "Oh damn, I can't fill up my little scooter that normally gets 100mpg to get to work" in places like India and the Philippines.

Americans just like to bitch about gas being expensive. Up until $4/gallon, anytime I looked out onto a main road here in Houston, a good half of any of the vehicles on the roads at any time would be pickups. Another 40% were SUVs, and the rest were 1% luxury cars and 9% beat up imports driven by poor people.

People don't seem to realize that inflation plays a big part of it too. Gas may have been in the dollar-or-so range 10 years ago, but the dollar was worth more too. Adjusted for inflation, if you are paying an amount that starts in "1" per gallon of gas, you are probably paying less than someone who was paying that in the 90's, and definitely the 80's.

 

the current avg around here is 2.25 right now. Which to me seems almost about right considering Inflation.

if you look back 6 years..oil was around what it is now for a bar. The price was about 1.79 give or take

at the start of 2000 though gas was only 1.30 or so..in fact I clearly remember seeing prices at .99 cents around here for a very short time after Clinton was getting out.

can't complain..20 bucks to fill prius..is better then 45+

 

Yeah no I meant starts with a 2, not a one. With our inflation, the value of the dollar etc, seeing gas start with 1 just shows how bad the economy is right now. Around $2-$2.50 should be about as cheap as it would get in a strong economy.