Oil Prices Expected to Drop
It is hard for me to be upset about this one. Analyst predicts plunge in gas prices.
According to the article, if gas prices continue to drop, which all signs are pointing that they will, then the price of gas at the pump could reach $1.15. That’s a far cry from the $3.01 I spent two months ago, or the $3.15 I spent in December in Boston. That’s a difference I can see!
And the reason the prices are dropping has nothing to do with oil companies seeking to better the voting ground for the Republicans come November. What it has to do with is market forces finally evening out the balloon that oil futures had created.
If you were talking to me two months ago you know that I was in a tizzy about futures being at $74 a barrel. And you would know that I said that the oil market is in bubble mode, much like the dot-coms of the 90s. Because the current cost of oil was nothing compared to what the share holders were saying it would cost in futures, and commodities traders and those with pensions tied up in oil stocks, were going to make a ton of money off this bloated stock.
People were afraid of issues in the Middle East, Nigeria, and even the summer driving season in the US. And with the increased demand across the globe, the oil companies were concerned that their reserves would be tapped out. So what you had was an increase in production to cover what they thought would be increased demand over a world that was going to be harder to get to. And they were afraid that Hurricane season 2006 was going to be the end all and that would shut down even more production cutting back supply even more. Add to that the growing fears about production being stopped or slowed in the Middle East because of unrest, and the oil futures folks were certain that $74 was just about right.
Turns out they were wrong. Not only is this years hurricane season turning into a none event (thus far, knock on wood), but the issues with Lebanon and Israel have (for the time being) cooled. So slash that one off the list. Add to that that the summer driving season didn’t push oil reserves into the red, and you have a surplus in reserves equaling what we had in the 1990s.
Which brings us to what could be 1990s prices.
I’m not convinced that the price will drop as far as this analyst is saying, but he makes a good point. If the price is dropped precipitously, and you own the stock, what are you doing right now? You’re selling now while the price is still high so you can make some money. More shareholders sell, the more the stock price falls and the more the price at the pump falls. It’ll be a crash in the oil market.
And I’m positive that’ll have negative repercussions somewhere, but not on my trip to the gas station.
According to the article, if gas prices continue to drop, which all signs are pointing that they will, then the price of gas at the pump could reach $1.15. That’s a far cry from the $3.01 I spent two months ago, or the $3.15 I spent in December in Boston. That’s a difference I can see!
And the reason the prices are dropping has nothing to do with oil companies seeking to better the voting ground for the Republicans come November. What it has to do with is market forces finally evening out the balloon that oil futures had created.
If you were talking to me two months ago you know that I was in a tizzy about futures being at $74 a barrel. And you would know that I said that the oil market is in bubble mode, much like the dot-coms of the 90s. Because the current cost of oil was nothing compared to what the share holders were saying it would cost in futures, and commodities traders and those with pensions tied up in oil stocks, were going to make a ton of money off this bloated stock.
People were afraid of issues in the Middle East, Nigeria, and even the summer driving season in the US. And with the increased demand across the globe, the oil companies were concerned that their reserves would be tapped out. So what you had was an increase in production to cover what they thought would be increased demand over a world that was going to be harder to get to. And they were afraid that Hurricane season 2006 was going to be the end all and that would shut down even more production cutting back supply even more. Add to that the growing fears about production being stopped or slowed in the Middle East because of unrest, and the oil futures folks were certain that $74 was just about right.
Turns out they were wrong. Not only is this years hurricane season turning into a none event (thus far, knock on wood), but the issues with Lebanon and Israel have (for the time being) cooled. So slash that one off the list. Add to that that the summer driving season didn’t push oil reserves into the red, and you have a surplus in reserves equaling what we had in the 1990s.
Which brings us to what could be 1990s prices.
I’m not convinced that the price will drop as far as this analyst is saying, but he makes a good point. If the price is dropped precipitously, and you own the stock, what are you doing right now? You’re selling now while the price is still high so you can make some money. More shareholders sell, the more the stock price falls and the more the price at the pump falls. It’ll be a crash in the oil market.
And I’m positive that’ll have negative repercussions somewhere, but not on my trip to the gas station.
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