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October 23rd, 2008

OPEC Determined to Raise Oil Prices

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While consumers celebrate cheap gas prices, OPEC is panicking. The Organization of the Petroleum Exporting Countries has rescheduled their “Extraordinary Meeting” three weeks early to deal with the 50% drop in oil prices since July. Oil prices rose to over $68 a barrel today after dipping as low as $66.12 yesterday afternoon.

“We should also remember that low prices will, without any doubt, result in the cancellation of many upstream and downstream projects, and this will lead to future long-term supply problems,” said OPEC Secretary General HE Abdalla Salem El-Badri in a speech delivered at the 3rd International Energy Week in Moscow this week.

“I should like to stress, however, that despite the current financial stress and its inherent uncertainties, and the increasingly tight access to credit for businesses in all industries, OPEC remains committed to ensure the market is adequately supplied at all times.”

All of the OPEC countries have billions of their country’s dollars invested in oil production, and the lack of consumer consumption is hitting their pockets hard. While OPEC is likely to cut production at their newly-scheduled meeting on October 24 to keep oil prices from falling further, judging by the secretary general’s words, OPEC is committed to pumping enough oil to meet the returns on their investments, plus some.

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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2 Responses to “OPEC Determined to Raise Oil Prices”

  1. Lucia Says: October 24th, 2008 at 4:48 pm

    What is the measure of demand destruction resulting from fewer consumer airline flights, from reduced cargo shipping, and reduced shipping from car manufacturers? How does the reduction is fuel consumed by these industries compare to the reduction in vehicle gasoline?

  2. Tim Manni Says: October 27th, 2008 at 3:20 pm

    Lucia,

    Thanks for your comment, it’s a good question — one I don’t know off the top of my head exactly. This is from MarketWatch.com:

    “AMR paid $3.57 per gallon for jet fuel in the third quarter compared to $2.17 a gallon in the third quarter of 2007, a 64 percent increase. As a result, the Company paid $1.1 billion more for fuel in the third quarter of 2008 than it would have paid at prevailing prices from the prior-year period.”

    This link (http://www.bts.gov/press_releases/) has some interesting reports that may help answer the specifics of your question.

    While we know vehicle miles driven is down across the board, certain industries still rely on transportation to ship their products using gasoline (trucks, planes). I wouldn’t be surprised to learn industrial miles driven isn’t down as much as consumer miles driven, because industries and corps have the luxury of raising product costs to make up for the rise in gas prices, consumers aren’t so lucky. Be sure to check out this blog post: http://blog.hsh.com/?p=1053

    Hope this helps,
    Tim

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About the HSH Blog

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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