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September 11th, 2008

Consumers in Control of Their Gas Price Destiny

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Oil prices were relatively unchanged this morning despite OPEC’s announcement yesterday that they were trimming daily production by 500,000 barrels. Just as we had predicted, OPEC’s modest trim had no immediate effect on rising prices. Oil producing countries have fresh memories of what record-setting gas prices did to consumer demand. While it’s highly likely that OPEC will do its best to keep oil prices from reaching July levels, they need to keep oil prices from dipping too much lower in order to maintain profits.

It will be a chess match between consumers and oil-producing countries to keep the price of oil at a level where both consumers will spend and producers can turn a steady profit. Maintaining the US’s dependence on oil will delay the production of alternative fuels and vehicles — good news for OPEC.

While many experts predict oil prices to maintain around the $100 mark, some say that level may not last long:

“I think they feel around $100 a barrel is a number they are happy with,” said oil industry analyst Jim Ritterbusch, about Saudi Arabia.

That price still provides producers a nice profit margin—$25 a barrel more than a year ago—but also has the benefit of not further undermining global demand, which has dropped steeply in recent months.

Bryon King, an oil industry geologist and industry analyst and editor of Outstanding Investments newsletter, also expects prices to slip into the $90 range in the next couple of months.

“But we better enjoy it while we can,” he adds, because prices will rebound with the economy, especially as oil field depletion rates continue to outpace new supply coming on-line.

A strengthening dollar will continue to create a positive control on pricing, allowing the US to get the most bang for their buck when buying oil. As volatile as the oil industry is, consumers are in the driver’s seat in terms of controlling how much they are willing to pay for gasoline.

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One Response to “Consumers in Control of Their Gas Price Destiny”

  1. Gas Prices down, OPEC not happy | Stale Fresh Life Says: October 23rd, 2008 at 2:36 pm

    [...] As consumers, we can continue to control the direction of gas prices by limiting our consumption. Reduced-consumer consumption has made a direct impact on falling prices. Demand for gasoline has dropped 6.4% since last year. “Last week, 62.9 million barrels were sold at retail locations, compared to 66.9 million barrels that were sold during the same week in July when gasoline prices surged to a record high,” wrote Emily Maltby on Tuesday in a piece from CNN Money. [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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