Opec sees possible lower oil prices soon
Earlier this year when we spoke to Dr. David Cole, one of the risks that he mentioned of relying solely on fuel economy standards as a way to reduce oil consumption was the threat of oil prices dropping. If nothing is done to help create demand for more efficient vehicles, lower oil prices could keep drivers in their thirstier vehicles. Today OPEC released a report where they estimate slower world economic growth in 2008 easing pressure on demand for crude oil. The organization expects oil demand growth to be steady at an extra 1.3 million barrels per day compared to the 2.1 million barrel per day increase projected by the International Energy Agency.
While this may not be enough to dramatically reduce oil prices, the possibility of that happening at some point remains if OPEC feels threatened. In order to minimize the impact of such volatility on consumers and carmakers, Dr. Cole recommended setting a floor price for crude oil of $40-45 per barrel. If crude prices drop below that level taxes would be imposed to maintain that minimum. Given the recent run up to the $100 per barrel range, the floor could probably be reasonably set at at $75-80 a barrel without imposing too much pain on consumers. The tax provisions that were stripped out the energy bill to ensure passage would have had some of this effect. Of the $21 billion in increases, $13 would have come from repealing tax breaks for oil companies. This would surely have been passed along to consumers which would have the desired effect of raising fuel prices and promoting demand for more efficient vehicles.
[Source: Reuters, via Winding Road]
Reader Comments (Page 1 of 1)
richardtoh 4:19PM (12/14/2007)
OPEC's ability to manipulate oil prices should be obvious to anyone reading the title of the article alone. This should serve as an incentive to us all to conserve.
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Mr. Guiyotinne 5:27PM (12/14/2007)
That´s friday humor too...
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Tim 4:55PM (12/14/2007)
Yea, OPEC will lower oil prices as soon as they believe this will bankrupt as many competitors to oil as possible. Hell, it worked in the 70s!
The feds are so busy doing all those things that the 10th amendment to the US Constitution says they can't do, that they don't have the time or the will to keep these monopolies from controlling our economy.
This mess is all YOUR fault If you vote for an incumbent next year!
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mike 7:06PM (12/14/2007)
How do they plan to control China?
The only way we're going to see lower oil prices is if China goes into recession.
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TG 8:46PM (12/14/2007)
Consider, over a million Priuses sold, not to mention all the other hybrid brands.
Consider the amazing cut in diesel fuel demand with the magic of new diesel tech and TDI.
Consider the surge in ethanol use by governments, fleets, municipalities and the military.
Then ask yourself what is supporting the high cost of fuels at the pump.
Should every al Qaeda suicide bomb that goes off in the middle east be enough to keep oil at $90 a barrel rather than $45 where it belongs?
This looks like ExxonMobile, Chevron and the gang milking us for their soft landing into new low petroleum demand auto-tech.
We are such sheeple. = TG
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Dad 8:56PM (12/14/2007)
"Dr. Cole recommended setting a floor price for crude oil of $40-45 per barrel. If crude prices drop below that level taxes would be imposed to maintain that minimum"
Say what? OPEC would sit their and watch the oil get taxed to bring it up the the "floor" too make up the difference? NOT.
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rgseidl 4:10AM (12/15/2007)
Note that Japan and Western Europe have long had high fixed excise fees for on-road fuels, because they have few or no domestic sources of oil. Using fixed fees rather than percentage-based taxes means a 30% change in the price of oil results in just a 10-15% change at the pump. Of course, the strong Euro has also helped soften the blow of the recent run-up, which is still traded exclusively in US dollars.
Cheap energy enables more rapid growth, but only at the risk of high volatility. This mitigates against investments in energy conservation, which typically involve significant up-front investments and long amortization periods. Europe and Japan, by necessity, take a much longer view in their energy policy than the US does.
A floor price for oil would extend the planning horizon, subject to the dollar exchange rate. However, it would do little to moderate volatility as long as the market is at higher levels. Moreover, it would present public finances with two risks: unexpected tax revenue windfalls when the market price falls below the floor and, shortfalls when it unexpectedly rises above it again.
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Dad 7:34AM (12/15/2007)
"Moreover, it would present public finances with two risks: unexpected tax revenue windfalls when the market price falls below the floor and, shortfalls when it unexpectedly rises above it again."
I would say welcome to my world! Why the "public sector" is entitled to stability in their world yet I am not, is beyond my comprehension.
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clarkitekt 9:35AM (12/15/2007)
OPEC doesn't have the control over oil prices they once had. The demand is simply too high and the supply too low (and becomingn less and less). If they did have a lot of control they would have been easing prices back a long time ago to insure, for one, that oil sources and exploration outside of OPEC control did not become economically viable for production (like deep opeceanic and Canada's oil sands (this is the World's largest oil reserve by the way it has in the past just been too costly to extract to be marketable)).
Generally speaking, in the past the OPEC nations had the capcity to simply crank up production to bring the price down to where they want it (low enough to insure growing demand yet high enough to make money). As demand is now, they don't have the capacity to just open the valve any further, it is already pretty much wide open.
All that said, unless someone finds some massive unknown oil reserve; the lowest oil prices will ever fall from here on out will be in the $80 dollar range, if that low.
FYI to you people that think diesel fuel use is lowering oil demand. Unless you are talking about biodiesel, regular diesel is made from crude oil as well and most likely has a higher embodied energy than gasoline as it takes more refining at higher temperature to produce (which is even more true for the lower sulfer stuff).
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