Living Car Free - Oil is less than 40 dollars

What's this (http://news.yahoo.com/s/ap/20090109/ap_on_bi_ge/oil_prices) all about?


Oil prices fell below $40 per barrel Friday for the first time this year as the government reported the nation's worst annual job losses since World War II.

People are traveling less, manufacturers are slashing production and there are job cuts across almost every sector of the economy, leading to a severe drop-off in energy use.

And in another bit of bad news, the average national retail price for a gasoline rose again overnight.

And in another bit of bad news, the average national retail price for a gasoline rose again overnight.

Gas now costs a dime more per gallon than it did just a month ago even as crude prices fall. Gasoline bottomed out at $1.61 a gallon on Dec. 30 and prices have yet to catch up with the latest drop in crude.

The Labor Department said employers slashed 524,000 jobs in December and 2.6 million jobs for all of 2008. It was the worst annual loss since 2.8 million jobs were loss in 1945, although the number of jobs has more than tripled since then. The nation's unemployment rate jumped to 7.2 percent, the highest since 1993.

Light, sweet crude for February delivery fell $1.80, more than 4 percent, to $39.90 on the New York Mercantile Exchange.

What's this (http://news.yahoo.com/s/ap/20090109/ap_on_bi_ge/oil_prices) all about?
Deflation trumps peak oil, I guess. July 8, 1931: Humble Oil was buying crude at ten cents a barrel.

You answered your own question. Less demand + static supply = lower prices

Deflation trumps peak oil, I guess. July 8, 1931: Humble Oil was buying crude at ten cents a barrel.

Deflation caused by what?

Do you really think demand is down significantly? I still can't ride comfortably to work with all the cagers! I still heat my home with natural gas, same as last year? The bulk of the food I eat requires enormous amounts of water and petroleum. I'm not eating any less this year, nor have I noticed this behaviour in others.

When I see huge price swings in a commodity, I tend to think we are closer to chaos than it would appear.

Don't trade in your Surly for an SUV just yet. Oil prices will go very high again, and when they do, the increase will be rapid. I think it would be foolish to expect oil to stay below $100/barrel for any length of time once the economy recovers, and it won't even have to recover completely. OPEC is frantically cutting supply, oil companies have virtually halted exploration and capital investment, and governments at all levels are seriously toying with the idea of raising fuel taxes. People in developing countries still think that cars and refrigerators are wonderful ideas. When the American people finally feel comfortable enough to start borrowing money and buying stuff they don't need from China again, we'll be back to static supply and relentlessly increasing demand.

Agree with what Bragi said. Basically our worldwide demand was within one million bbls of oil/day of supply last year, hence the dramatic upswing in prices. Any blip caused a spike. Of course there was plenty of speculation also. So you take a few million bbls/day of demand away and all of a sudden we have excess supply and prices fall thru the floor. Aided btw by many speculators and hedge funds having to unwind their positions in commodities to cover their other outstanding obligations in the past couple of months.

But as Bragi says, it won't take much for a pickup in demand to eat up that excess supply and away we go again. In addition, most people don't realize that the supply is actually dropping with big fields like Mexico's Cantarell dropping 15% last year alone, along with many others. New discoveries are not keeping up, especially with declining prices trimming back exploration and development. It is just a matter of time before the demand and supply curves intersect again, with predictable results.

Just another investment opportunity imho.

It's my understanding that commodity prices are somewhat to heavily influenced by traders, and traders place value on commodities based on what future demand might be. If they think that demand for a commodity will dip even a little bit, or just stay flat, traders don't see any point in buying, which drives the price down even more. So, yes, people in this economy aren't eating less, not if they can possibly help it, but they are eating out less, and holding off on big purchases like houses and cars, and shopping a lot more carefully when they do buy stuff, and so, even if demand isn't actually falling, it isn't increasing very much, either, so commodities become less scarce and traders flee and park their money in T bills, which causes all sorts of commodities, from copper to oil to wheat, to go spiraling down the deflationary toilet. I'm beginning to wonder if what we're seeing right now isn't simply a return to what prices would normally be if a rather small group of people weren't distorting the market.

Well, undoubtedly there is some of that involved (maybe 30%?) but I think oil will go back up to $80-100 within 1-2 years. I *hope* it does because we need that price range to keep alternatives moving along their own production curve. It all depends if the world economy can be jumpstarted or if it continues to stagnate, in which case prices of many commodities may stay low for years, even oil.

It's my understanding that commodity prices are somewhat to heavily influenced by traders, and traders place value on commodities based on what future demand might be. If they think that demand for a commodity will dip even a little bit, or just stay flat, traders don't see any point in buying, which drives the price down even more.

Supply is an issue, too. With the weirdness happening in the Ukraine with Russian natural gas right now, you'd think traders would be concerned about how secure some of these oil supplies are. It doesn't take much these days to rattle the market... and, yes, when it rattles, the prices goes up.

Good answers. Why are gas prices going up now, as crude oil prices continue to go down?

(Gas is almost back to $2 here, up from about $1.60 a couple weeks ago.)

It's my understanding that commodity prices are somewhat to heavily influenced by traders, and traders place value on commodities based on what future demand might be. If they think that demand for a commodity will dip even a little bit, or just stay flat, traders don't see any point in buying, which drives the price down even more.

In other words, they're using computer programs instead of poking chicken entrails around on a stone slab.

My Econ 101 class in college taught me as much.

In other words, they're using computer programs instead of poking chicken entrails around on a stone slab.

My Econ 101 class in college taught me as much.

I think we'd all be much better off if they'd stuck with the chicken guts.

Right; it'd be the same result. The computers just don't smell as gross.

I've said it before, and I'll say it every time: I wish I could bull*** my way through life as an economist.

Right; it'd be the same result. The computers just don't smell as gross.

I've said it before, and I'll say it every time: I wish I could bull*** my way through life as an economist.

Actually the computers are much worse than the chicken guts. They never would have been able to concoct these derivatives and securitized funds without powerful computers.