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Oil prices have dropped by 60 percent since July, writes Science Correspondent Ronald Bailey. And they fell without the benefit of a gasoline tax holiday, new anti-speculator regulations, or a windfall profits tax on oil companies. So what happened?
New at Reason: Ron Bailey on Why Oil Prices are Falling
Comments to "New at Reason: Ron Bailey on Why Oil Prices are Falling":
J sub D | November 18, 2008, 12:12pm | #
Oil prices have dropped by 60 percent since July, writes Science Correspondent Ronald Bailey. And they fell without the benefit of a gasoline tax holiday, new anti-speculator regulations, or a windfall profits tax on oil companies. So what happened?Did not RTFA but I'm gonna take a wild uninformed guess. Sine Saudi sized oil fields have not come on-line in the last 6 months, I'm gonna guess ... Lower demand?
Hazel Meade | November 18, 2008, 12:14pm | #
Three causes:1. The run up was speculative.
2. The financial crisis popped the bubble.
3. New production came online.
Uh, hello!!! The terrorists heard our "drill here, drill now" chant and reduced the price of oil. They know that America has enough oil to kick some terrorist butt.
Lefiti | November 18, 2008, 12:29pm | #
Prices are just like the rain and the sun--all just natural things that don't need any government interference. Relying on the horrible state is like using a condum or other form of birth control--it's against nature and natural law!In the town where I get gas on the way to work, it's at $1.97. I honestly thought we'd never see it get below two bucks again.
Gilbert Martin | November 18, 2008, 12:31pm | #
"And if the oil companies don't stop enriching their shareholders, Congress will see to it that the "windfall profits" are taxed away and spent by government bureaucrats on alternative energy projects. It is possible that the members of Congress know better how to spend oil company profits than do their executives, but the Federal government's record in this area is not impressive."I have yet to hear any of these Congressmen explain why it is any more the responsibilty of the big oil corporations to finance some alternative energy scheme they dream up than it is for any other corporation such as Proctor & Gamble, Microsoft, etc.
Exxon is in the oil and gas business. They are no more obligated to develop wind or solar power (or anything else) than any other entity is.
Any alternative energy source that is REALLY all that viable should presumably be able to attact enough investment capital to get it developed independently of the "Big Oil" corporations.
And if the policitians claim some scheme is a "public good" then they should quit pussyfooting around about it and directly put taxpayer money (and their neck) on the line for it instead of trying to sneak around and do it through the back door with windfall profits taxes or mandates on "Big Oil". Because those mechanisms would essentially impose at tax on everybody as well. It just wouldn't be called that.
I agree, sage. I was very pleased to feed the Massive Pickup $1.84 gas yesterday.
D.A. Ridgely | November 18, 2008, 12:35pm | #
I await Congressional demands that consumer windfall 'profits' resulting from no longer having to pay over $4 a gallon be disgorged to support the struggling oil companies.(Meanwhile, the price of a gallon of regular here in North Texas is hovering around $1.80)
Michael Pack | November 18, 2008, 12:36pm | #
I wonder what will happen to the governments that depend on high oil prices.I doubt they saved or invested much,take Russia and Iran for instance.Could be interesting.DADIODADDY | November 18, 2008, 12:38pm | #
filthy supply & demand non governmental interference...when will we learn that the government should control every aspect of our lives, without question?Lester Hunt | November 18, 2008, 12:44pm | #
Don't some of these price swings also have to do with changes in the value of the dollar?Leftibot | November 18, 2008, 12:44pm | #
I hope you libertardians spend all your pump savings on hookers and blow.Reinmoose | November 18, 2008, 12:45pm | #
In my circle, I called the oil bubble - but there's no way that demand is the only thing causing this commodity to tank. It's more or less that it was more inflated than most analysts were willing to admit.I'm waiting for the prices of positively everything else to come down because the cost of oil has come down, since every company under the sun used high oil prices as a justification for raising them.
Its interesting to note that deliveries to the Strategic Petroleum Reserve were finally halted in July - at the peak of crude prices. Often an oil man's best friend is the government.
Jamie Kelly | November 18, 2008, 1:02pm | #
Just got out of alcohol rehab and the price of gas fell $1.60 in 28 days.That's pretty sweet.
Made the drive home worth it. Plus the fact that I got sober.
Mike M. | November 18, 2008, 1:06pm | #
There'll be time for Obama and the Democrats to do something about these outrageously low gasoline prices come February, like imposing an extra $1 to $2 per gallon tax on gasoline at the retail level.This will guarantee that they hold onto their power for eternity, because all working Americans hate this cheap gasoline and are desperate to pay higher taxes, especially in an economic downturn.
John-David | November 18, 2008, 1:12pm | #
Let's see, shrike. The SPR was filled at a rate of 60,000 barrels per day, which caused this huge increase in the price of crude oil. OPEC is about to cut production by over ten times that much, yet oil futures aren't going up to their peak levels. Why?LGF Fan | November 18, 2008, 1:13pm | #
It's because of DRILL BABY DRILL!!!!!John | November 18, 2008, 1:19pm | #
1. The dollar has gone up.2. Demand has fallen because of the global recession.
3. Demand for gas is inelastic as hell but not totally inelastic. It will fall with higher prices and did fall. The flip side of that inelasticity is that demand doesn't rise as fast when prices fall. That is why oil is a boom bust commodity.
Not to gloat, but I will, when oil was at $140 and all of the "peak oil" degenrates were on here cyring doom doom doom, I said the price would bust. It always does.
stuartl | November 18, 2008, 1:25pm | #
I said the price would bust.Ron Bailey had also been making the same predictions.
So, let me be the first to predict that after the price of oil bottoms out, it will go up again.
Another Phil | November 18, 2008, 1:26pm | #
Just got out of alcohol rehab and the price of gas fell $1.60 in 28 days.That's pretty sweet.
Made the drive home worth it. Plus the fact that I got sober.
What, no profanity? Seriously though, congratulations.
shrike | November 18, 2008, 1:28pm | #
I was referring to the extra $9 billion put into the coffers of the oil companies, J-D. ($90 x 100 million bbl over and beyond today's spot price) and removed from the taxpayers wallet.I am well aware of the speculator's effect on oil prices during the spike.
John | November 18, 2008, 1:30pm | #
"So, let me be the first to predict that after the price of oil bottoms out, it will go up again."It sounds incredibly simple and it is. Sadly, the idea that high prices do not sustain themselves for very long without some kind of artifial support is a hard concept for some to grasp. There are lots who were claiming it would never go down that the "age of cheap oil was over".
Gilbert Martin | November 18, 2008, 1:38pm | #
"...high prices do not sustain themselves for very long without some kind of artifial support...""Artificial support", you say?
Enter Comrade Obama, stage left with a global warming carbon tax scheme.
Jamie, if you're sober, it means I'll have to get wasted more to cover for you. I'm not complaining.
ed | November 18, 2008, 1:50pm | #
So, let me be the first to predict that after the price of oil bottoms out, it will go up againAnd let me predict that the currently silent leftist demogogues in D.C. will resume their blathering about taxes and controls and dire punishments as gas prices inevitably rise again next spring.
lunchstealer | November 18, 2008, 2:01pm | #
I think some of the gas savings have also come from a shift in families' driving habits.For example, the family that has a suburban and a sedan. Previously, whenever the family decided to go somewhere, everyone would pile in the big car, even if there were enough seats in the smaller one. Once the pricing got high enough, people started making a point of taking their more fuel-efficient option wherever possible. So everyone squeezes into the Civic unless you absolutely have to take the Suburban. That's going to amount to a good 5%-10% fuel savings for many families right there without reducing the total number of miles driven, or having to go out and replace a gas guzzler.
Geotpf | November 18, 2008, 2:22pm | #
I'll just quote the husband of the future Secretary of State:It's the economy, stupid.
SugarFree | November 18, 2008, 2:24pm | #
Just don't start apologizing for shit.Jeez. I thought I was the unsweet one.
The Angry Optimist | November 18, 2008, 2:32pm | #
I eagerly anticipate (as D.A. said earlier) President Obama pushing for a "windfall consumer profits tax" to recompense the evil consumers for greedily taking advantage of low prices.SugarFree | November 18, 2008, 2:33pm | #
I eagerly anticipate (as D.A. said earlier) President Obama pushing for a "windfall consumer profits tax" to recompense the evil consumers for greedily taking advantage of low prices.Isn't that what the tax increase is for?
JW | November 18, 2008, 2:46pm | #
Jeez. I thought I was the unsweet one.WhadIsay? I don't think I could take a "nice" Jamie.
On point though, 2 of the stations near me are having an honest to god price war. It's fucking glorious.
Mo | November 18, 2008, 2:50pm | #
I'd like to quibble with Bailey's point that stock buybacks create shareholder value. It doesn't raise the market cap or improve the ROI. It just reduces the number of shares outstanding and raises the stock price.By the way, I would hardly call oil in the 50s low. It would still represent a 40% premium over oil in 2004, in the face of a recession. It's also a 100% higher than prices were during the last recession in 2001/2. Exxon Mobil execs would be very happy if oil stuck around in the 50s.
BDB | November 18, 2008, 2:56pm | #
I agree with Mo about mid-50s not being "low". If it gets back into the $10-$20 range, then it will be "low".liber-note the small | November 18, 2008, 3:26pm | #
sage touched on a good point - for those bitching about the "outrageous" profits of oil companies, note that they are not among those companies blubbering to Congress about being "too big to fail".I won a steak dinner betting gas would be under $2 by the end of year back in June.
I also know that OPEC production cuts will have no effect on oil prices. History is on our side here, most OPEC countries (Think Iran and Venezuala specifically)vociferously fight for production cuts - and then cheat once they are implemented.
P Brooks | November 18, 2008, 3:29pm | #
I'd like to quibble with Bailey's point that stock buybacks create shareholder value.It creates shareholder value for shareholding executives, and increases the value of their options. And that's what's important.
Ron Bailey | November 18, 2008, 3:41pm | #
BDB & Mo: I didn't say prices were "low," I said they were "lower" and that the price bubble had burst. As I've written before, I am worried that incompetently run government-owned oil companies will keep prices higher than they would otherwise be for the foreseeable future.P Brooks & Mo: Buying back stock pays off shareholders who want to sell at the current price and tends to increase the value of stock the rest of us hold. It is true that it makes the stock options of corporate officers more valuable too.
Invisible Finger | November 18, 2008, 3:53pm | #
most OPEC countries (Think Iran and Venezuala specifically)vociferously fight for production cuts - and then cheat once they are implemented.Just like US farmers on ag subsidy quotas.
John-David | November 18, 2008, 3:53pm | #
"I was referring to the extra $9 billion put into the coffers of the oil companies, J-D. ($90 x 100 million bbl over and beyond today's spot price) and removed from the taxpayers wallet."Got it.
Brandybuck | November 18, 2008, 3:59pm | #
Why did prices come down? Summer ended. Duh.Kolohe | November 18, 2008, 4:00pm | #
Exxon Mobil execs would be very happy if oil stuck around in the 50s.XOM is not a well run company. I think a sustained price level of 50 bucks is as problematic to them as a sustained price level of 100 bucks is to most airlines.
Jamie Kelly | November 18, 2008, 4:04pm | #
Thanks guys.Never thought sobriety would be so ... nice.
And by the way, I don't plan on apologizing for anything, and there's no way I'm going to be fucking nice, especially with a giant cock with big-ass ears in the fucking White House for the next four shit-stained years.
Andy | November 18, 2008, 4:05pm | #
So has Obama taken his "tax the oil companies profits to fund alt. energy research" plan off the table? Or was that Pelosi? I can't remember, they look so much alike lol.Jamie Kelly | November 18, 2008, 4:05pm | #
Epi --Drink 'em in my name. I've fallen down enough for the both of us.
Malto Dextrin | November 18, 2008, 4:15pm | #
For all you consumers who want to lock in the current low gas prices: Buy an appropriate amount of gasoline futures, as far out in time as you can. Then you can use the profits from this speculation, to offset any increased fuel prices if the price goes up. This is how Southwest Airlines has managed to control its fuel costs, to its competitive advantage.Mo | November 18, 2008, 4:24pm | #
I won a steak dinner betting gas would be under $2 by the end of year back in June.You should have bought DUG. There's a lot more steak dinners there.
XOM is not a well run company. I think a sustained price level of 50 bucks is as problematic to them as a sustained price level of 100 bucks is to most airlines.
XOM had a net income of 9% of revenue when oil was trading in the 20s and 10% in 2005, when it was trading in the 50s. When you include all the fields they would develop once they saw a sustained $50 price. XOM would be sitting pretty.
Ron, I wasn't criticizing you for saying low, but everyone that were patting themselves on the back for predicting oil to drop from its peaks. When oil rose to $50/bl, it was a pain in the ass too. It's bearable, but I'd be a lot happier with oil at $20/bbl
SIV | November 18, 2008, 4:31pm | #
I didn't RTFA either but I'm sure J sub D nailed it in the first comment.KD | November 18, 2008, 4:56pm | #
Jamie Kelly | November 18, 2008, 4:04pm | #Welcome back Jamie!!!
Thanks guys.
Never thought sobriety would be so ... nice.
And by the way, I don't plan on apologizing for anything, and there's no way I'm going to be fucking nice, especially with a giant cock with big-ass ears in the fucking White House for the next four shit-stained years.
economist | November 18, 2008, 5:34pm | #
"Prices are just like the rain and the sun--all just natural things that don't need any government interference. Relying on the horrible state is like using a condum or other form of birth control--it's against nature and natural law!"Uh, did you even read the article?
economist (in his role as high priest of the Obama) | November 18, 2008, 5:35pm | #
Behold, the great Obama has caused oil prices to fall!economist | November 18, 2008, 7:02pm | #
Jamie Kelly went through alcohol rehab?Maybe I should consider that myself...
Nah! I'm gonna down me a few more shots.
economist | November 18, 2008, 7:03pm | #
"Jamie, if you're sober, it means I'll have to get wasted more to cover for you. I'm not complaining"Don't worry, Epi, already got it covered.
thoreau | November 18, 2008, 7:21pm | #
1) Congrats to Jamie!2) I'm buying a Prius anyway this spring. Oh yes, I am. Why? Because Murphy's Law says that if I do this then either the price of gasoline will never, ever rise ever again, or else the day after I buy it they'll come out with a 100 mpg car and then all these people will annoy the shit out of me by reminding me that I should have waited. To which I'll be able to reply that were it not for Murphy and my Prius their 100 mpg car would not exist.
mark | November 18, 2008, 8:19pm | #
If gas/carbon taxes replaced existing taxes, I'd be for it. Of course they never do, they just add to government revenue. But still, it's a worthy policy goal to wean the country off ME oil, and consumer taxes are a great way to do that (and infinitely more efficient than CAFE standards).But since I'm probably preaching to the choir here, allow me to post this nauseating video of Bill Moyers on climate change, punctuated by a heroic moment 14 minutes in, when Mitch McConnell ordered the climate change bill to be read in full, which took 10 hours =D
Enrique | November 18, 2008, 8:59pm | #
I'm an armchair economist, so am I right in saying the author obviously doesn't understand the nuances between "demand" and "quantity demanded"?The EIA apparently understands.
economist | November 18, 2008, 10:02pm | #
Maybe that's what I should rename myself.Chad | November 18, 2008, 11:06pm | #
Not to gloat, but I will, when oil was at $140 and all of the "peak oil" degenrates were on here cyring doom doom doom, I said the price would bust. It always does.Anyone taking bets on July 2008 having been peak oil? It is a distinct possibility. Production is down, and will remain so for as the recession lasts. When the economy finally turns around a year or more from now, it is not going to be a matter of just opening up a few of the closed spigots. Oil production rates from already-utilized fields are falling faster than ever, and discoveries of new oil are falling faster than ever. Since a price on carbon is essentially inevitable now, "unconventional" oil such as Canadian tar sands will not be economic until the price hits much higher levels...at which point we won't even want to bother because the alternatives will be cheaper.
Oil will start going up when the economic situation sorts itself out...and despite some blips and burps, the trend is clearly going to be in only one direction. You just can't escape the reality....there is only so much oil remaining, most of what is left is hard to drill and low grade, and worldwide demand is going relentlessly upward.
GILMORE | November 18, 2008, 11:40pm | #
Jamie Kelly | November 18, 2008, 4:04pm | #Thanks guys.
Never thought sobriety would be so ... nice.
And by the way, I don't plan on apologizing for anything, and there's no way I'm going to be fucking nice
I'm sure they have a rehab center for that somewhere too.
:)
i kid
William Walsh | November 19, 2008, 8:09am | #
Gasoline is cheaper now because of the heroic efforts on behalf of us worthless scum by the great mother-godess Nancy the Pelosi.Pray to her because prayer changes things.
I don't really believe in the Law of Supply and Demand btw. I hope Nancy will soon go to work on the Law of Gravity.
Bill Walsh
Xeones | November 19, 2008, 8:59am | #
Congrats, Jamie. I for one am looking forward to your, uh, observations over the next four years.economist | November 19, 2008, 10:16am | #
Chad,We know that. So, since the price of carbon-emitting fuels is only going to go up (and thus the quantity demanded will go down), I guess there's not too much need to worry over greenhouse gases, right?
economist | November 19, 2008, 10:17am | #
Oh, right, the price still won't rise fast enough. Anything that can work itself out works itself out better with government intervention.R C Dean | November 19, 2008, 10:41am | #
Since a price on carbon is essentially inevitable now, "unconventional" oil such as Canadian tar sands will not be economic until the price hits much higher levels...at which point we won't even want to bother because the alternatives will be cheaper.I think this is a way of saying that we can make damn sure July 2008 was "peak oil" via government intervention in the form of carbon taxes or cap 'n' trade or whatever, yes?
We're forgetting Greenspan's wisdom. We should be thankful for his farsightedness and his amazing fine tuning of the markets. Only ignorant fundamentalists will claim that oil's price has been driven by gov't intervention and money counterfeiting by the Fed...
Tim Yessin | November 20, 2008, 8:34pm | #
The reason for the drop in oil prices is not because demand has for oil has fallen....a 9% drop in worldwide demand does not equal a 68% drop in the price of oil, particularly because of the relatively inelastic demand for oil. The real factor at work is the growth rate of the money supply, which, despite a lot of hot air from a lot of people, is actually declining. Leverage and loan growth essentially create money supply, but the de-leveraging of the financial markets coupled with the lack of credit to consumers and businesses has dampened any money supply growth that we could have expected from the bailouts and the Fed interest rate reductions.M. Simon | November 30, 2008, 3:21am | #
Ron,I read an article in EDN and it turns out it costs more to run a vehicle on electricity than on oil if you pay 22ยข a kWh for electricity.
EDN on the price of electric transport.