Blog
March 13th, 2009

Downward pressure on oil prices

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There’s nothing like a global recession to help bring down oil prices:

World oil demand is contracting faster than expected, increasing pressure on prices, OPEC said on Friday ahead of a key meeting this weekend of the group.

The Organization of the Petroleum Exporting Countries said global demand will fall by 1.01 million barrels per day (bpd) in 2009 to average 84.61 million bpd. Its previous forecast was for demand to contract by 580,000 bpd.

World oil demand is falling for the first time in a generation as the deep global downturn closes factories and brings unemployment to the world’s largest economies.

Oil prices have fallen by around $100 a barrel from a peak of almost $150 last July, forcing OPEC producers to cut oil output in an attempt to balance the market.

The reasons behind the fall in demand include industries producing less product (and oil is used in a dizzying array of products), but a lot of the credit goes to us — for driving fewer miles:

For the 14th straight month, the Federal Highway Administration is reporting that the vehicle miles traveled (VMT) by Americans has declined. Fuel consumption is down an incredible 5.25 billion gallons in December 2008 compared to December 2007.

Obviously, VMT started declining when gas prices hit $4 a gallon, but it’s now less than half of that and we’re all still driving less. Why?

The answer seems to be that at some point the motivation shifted from the high price of fuel to the high cost of living. The price of oil is down because the demand for it is significantly impaired. Recessions will do that. Americans are driving less now because we’re not taking as many long trips, and we’re not going out to dinner. (We are going out to the movies at an unprecedented level, but that’s pure escapism, like the Busby Berkley movies of the 1930s.)

Exit quote from the Advocate article above: “The age of the SUV is definitively over. If you don’t believe that, GM has a Hummer division it would gladly sell you.” (The writer also got to road-test the new all-electric Tesla Roadster, and was duly impressed.)

Here in north NJ, regular gas currently costs about $1.70 per gallon — what’s it costing you?

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One Response to “Downward pressure on oil prices”

  1. Brian Marchant-Calsyn Says: March 16th, 2009 at 8:39 am

    Here in St. Louis, MO the average gallon of gas costs around $1.75.

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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 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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