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December 1st, 2008

What’s a Fair Price for Oil?



Over the weekend, Saudi Arabia’s Oil Minister Ali al-Naimi said $75 a barrel was a sufficient and fair target for oil prices that would keep global oil projects and production on time and efficient. This was the first time the world’s largest exporter of oil has announced a “fair price” for crude. The Organization of Petroleum Exporting Countries (OPEC) is scheduled to meet again December 17 in Algeria, where many experts expect the countries to trim global production by between 1-1.5 million barrels a day. OPEC cut 1.5 million barrels a day from global production in late October that went into effect November 1.

While OPEC expects cheap oil prices to help curb weak consumption slightly through the end of the year, they only expect increased consumption in 2009 predominantly in the Middle East, Asia, and China. “OECD [Organization for Economic Co-operation and Development] countries are expected to experience a decline in oil demand which is likely to pull total world oil demand growth down by more than 0.5 mb/d in 2009…”

Not all OPEC members believe $75 a barrel is a fair price — some countries have sought higher price targets:

Venezuelan President Hugo Chavez said the Organization of Petroleum Exporting Countries should return to a system of setting a price band for crude oil in order to guarantee stability in the market.

The country would consider a price of $80 to $100 a barrel to be “fair,” Chavez said today in a televised press conference in Caracas. OPEC created price bands in the late 1990s to try to keep oil between $22 and $29 a barrel.

We’ve said it before, we’ll say it again — it has been proven right before our eyes over the last six months – reducing our oil consumption has been the single most effective way to lower the cost of gasoline. While a target of $75 a barrel is currently out of reach for OPEC, they will continue to balance levels of supply and demand to reach the most profitable price target for their oil.

What’s a fair price you are willing to pay at the pump?

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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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