October 12, 2008 | | Comments 4

Oil Prices will continue to fall

I wish I could predict more things like this.

Oil prices have fallen to below $80 a barrel as of Friday October 10.  The sell off has been in place for several weeks but was accelerated on Friday due to a widening economic crisis. I expect oil prices to continue to retreat, between $40 and $50 dollars by the end of the year would not surprise me.  Why ?

1.) The slowdown is real, this time.

Inventories are building at businesses, which means the consumer is not buying and businesses will then not need to buy new inventory.  Historically this statistic has been highly correlated to short term economic growth.  It has become somewhat less accurate as businesses have moved to ‘Just in Time’ inventories, but the fact that efficient businesses are left holding product does not bode well for the short term.  Expect big Christmas discounting.oilbarrels

2.) OPEC is hurting.  Not just OPEC countries but all propped up dictators and economies built on oil prices are feeling the global pinch.  The Russian stock market, which is built mostly on oil and natural gas prices, has fallen more than the US stock market over the last several weeks.  Hard to believe but, true.  The faster the rise, the faster the fall.  Venezuela is substantially slowing major social initiatives, due to slowing oil revenues.  The next OPEC meeting is November 18.  Expect OPEC Leaders to message that they are cutting production, lots of news conferences and statements and then return to their countries and exceed their production quotas.  They have nothing else.  They are a one trick pony and have been for almost 40 years, economies built of natural resources.  Boo Hoo, poor Vlady.  Go practice your Judo.

3.) Speculation works both ways.  The outcry from financial market geniuses that speculation drove the oil price so high in the first place, that the market does not work, should be eating their words now.  It is not a workable policy to have ‘one-sided capitalism’.  You can’t stop speculation or regulate oil prices from rising quickly and then remove those regulations to let it fall quickly.  You can’t let everyone win by letting housing prices rise quickly and then regulate and protect consumers by not letting them fall as quickly.  Either have consistent regulation on both sides, which will lead to a muted market, or allow the swings up and down.  People can benefit from swings either way.

4.) The ‘Green Economy’ will continue.  This is my hope that the progress we are starting to make will not get slowed down by a dropping oil price.  Read more about this in my next article.

Now if my retail gas price will reflect this price decrease I would be happy.  The per barrel price has fallen 46% since the peak.  I think my peak price per gallon was around $4.29 for regular grade.  I just paid $3.29 a gallon this week.  A decrease of 23%.  It would help the economy if this moved to the consumer quickly.

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  1. In the long-term (decades), oil prices will rise. Alternatives are a good investment as long as you are willing to wait decades for the green.

  2. I think there are alternatives that are available a lot sooner – it is just a matter of will.

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  1. From Keep it Green « MYGREENSUIT on Oct 12, 2008

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