Oil drops to $106 a barrel
posted at 8:25 am on September 2, 2008 by Ed Morrissey
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The oil markets responded to the less-than-expected impact of Hurricane Gustav by touching off a selling spree, driving the price of oil to a new low in recent months. After losing $10 per barrel in a day, oil finally stabilized at $106 per barrel. OPEC may start adjusting its production to keep the price firm at $100:
Oil prices fell below $106 a barrel Tuesday in Asia — $10 below its close Friday before the Labor Day weekend — as investors shifted their focus to slowing global demand after worries about Hurricane Gustav subsided.
Light, sweet crude for October delivery was trading at $106.03 a barrel in electronic trading on the New York Mercantile Exchange midafternoon in Singapore, and at one point dropped as low as $105.46.
On Monday, when U.S. trading was closed for Labor Day, the contract had plunged $4.34 to $111.12 a barrel in late electronic trading. On Friday, the contract settled at $115.46 a barrel.
Traders were relieved that Gustav weakened as it approached the offshore oil rigs and Louisiana refineries, and appeared to have caused less damage than expected in New Orleans and surrounding areas.
Another key problem is a global economic slowdown. That may have been caused in part by the rapid rise in oil prices earlier, but now even supposed powerhouses like China and India will cut back on power production in coming months. The US demand will decrease with the end of summer, and won’t increase unless we have an especially cold winter.
OPEC meets in a week to consider their market position. If they want to defend the $100 per barrel limit, they will have to cut production. This will create a false shortage on the market which will cost them money in the short run, but preserve their assets for longer-term pricing. That will push prices at the pump higher, or at least keep them at current levels for a longer period than American consumers may have expected.
At the moment, because we import so much of our oil, we remain at the mercy of OPEC. The only way to break that reliance is to massively produce our energy independent of foreign oil, or at least as independent as we can make ourselves. The more we add our own resources, the less money we send abroad, the more jobs we create here, and the weaker OPEC gets. They can only play with the market as long as they control it; with the US mostly out of the global market, OPEC might collapse as its members abandon the cartel and fend for themselves instead.
When will we finally begin to take responsibility for our own needs and keep our money in the US?
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OPEC screwing with the price by cutting production? Would they do that?? /s
Seems we really need to address domestic production and fast.
coldwarrior on September 2, 2008 at 8:28 AM
Since this is a political blog, I’ll ask the question:
How will a drop in price influence the energy debate this fall? Will it undercut McCain’s position that more drilling will be the best way to reduce prices?
Big S on September 2, 2008 at 8:31 AM
As soon as Palin becomes Vice President and sets the agenda for the Senate.
She’s already fixed the problem in Alaska and the only thing that has stopped her from impacting the problem on a national level from her position as Governor is Congress.
If she was completely incompetent on every other issue on earth, she should still be elected VP on this point alone.
Damiano on September 2, 2008 at 8:34 AM
No need to worry, remember, we went to Iraq for the OIL!
Before you know it we’ll all be driving Hummers with the emergency brake on because oil will be 5 cents a gallon.
Alden Pyle on September 2, 2008 at 8:35 AM
There is also the possibility that between Bush and the “drill now” faction of Congress, the US may start drilling, so that is being factored in, even though it would be years before that oil is in the market. There may be places where drilling platforms are in place. How long it takes to get shale oil drilling, I don’t know.
Wethal on September 2, 2008 at 8:35 AM
Is it ridiculous to think the Palin pick might’ve scared OPEC because she’s a pro-drilling pro-American energy pick?
JustinHiggins on September 2, 2008 at 8:35 AM
If one looks at more drilling being simply a means to cut prices…yeah, this oil price drop “may” have a negative influence and undercut all the uproar over the past six months about high energy prices. There is a danger that when people who sold or mothballed their SUV’s see gasoline at the $2.75 level, they’ll believe the “crisis” is over. Not good.
But, if one looks at this from a national security standpoint, the argument remains the same.
coldwarrior on September 2, 2008 at 8:35 AM
heh, gallon = barrel
Alden Pyle on September 2, 2008 at 8:36 AM
This would make a great pro-drilling commercial.
OPEC is reducing production in order to keep prices high.
Pelosi and the Democrats say that increasing supply will have no impact on prices.
Who are you going to believe.
MarkTheGreat on September 2, 2008 at 8:39 AM
Minor point, you don’t drill shale oil.
The rock that it is in has to be crushed and the oil cooked out of it.
MarkTheGreat on September 2, 2008 at 8:41 AM
About the same time as Jerrold Nadler gets down to 8% body fat.
SlimyBill on September 2, 2008 at 8:44 AM
I think OPEC was more worried when the price was in the $140’s as global demand destruction was starting to show up in a number of economic indicators. OPEC’s target price now is probably in the $100-$120 range, but if demand destruction continues they’ll have trouble holding $100.
RedWinged Blackbird on September 2, 2008 at 8:46 AM
What? No bounce from Pooty Poot “shooting” a tiger? I wonder what he will do next…
Look out Ukraine…
TheCulturalist on September 2, 2008 at 8:47 AM
Why is it always a faltering world economy, and never Bush lifting one moratorium, McCain changing his mind of OCS drilling, and a pro-drilling VP nominee that’s responsible for the plunge in the price of oil? WHY?!
ParisParamus on September 2, 2008 at 8:47 AM
You know, ANWAR doesn’t have the problem of hurricanes.
Just sayin’ is all.
rbj on September 2, 2008 at 8:50 AM
Like Ben Stein said, becoming energy independent is nearly impossible. It doesn’t mean we can’t reduce our dependence though.
lodge on September 2, 2008 at 8:52 AM
A post of speculation… I’m wondering if the Palin choice sent a clear signal that America is serious about our self sufficiency on energy.
EyesOpen on September 2, 2008 at 8:52 AM
I was thinking Palin choice too, just like after Bush announced drilling in parts of Alaska
jp on September 2, 2008 at 8:55 AM
But what about all those melting ice caps and floating polar bear carcasses? Could be a real mess.
RedWinged Blackbird on September 2, 2008 at 8:56 AM
but there is that caribou infestation to worry about.
TheCulturalist on September 2, 2008 at 8:56 AM
High price forces people to change their buying habits.
Once they make those adjustments they won’t go back until price falls a significant amount.
OPEC has put themselves on the slippery slope.
Also, all that construction activity in China in preparation for the Olympics is now over.
We’re going down, the only question is how far.
rockhauler on September 2, 2008 at 8:57 AM
Big S on September 2, 2008 at 8:31 AM
I suspect it will take some edge of the urgency, but it won’t alter things too much. In terms of real dollars (adjusted for inflation and other economics stuff) the post Katrina spike in oil prices was the first time we surpassed the prices in the early 80s. It was a shock, but it didn’t last. It wasn’t enough to get America to the tipping point. When gas went over $4 per gallon, we tipped.
I think the real big factor that would have, and still may, seal the deal for domestic drilling is heating oil prices. Had oil still been near $140 a barrel come heating season, voters would be much more receptive to drilling domestically.
fluffy on September 2, 2008 at 8:57 AM
I’ve been in the oil patch since the days of $3/barrel oil, and what I can tell you is that whenever the price drops, and people take their eyes off of the prize, so to speak, the public forgets about it, and nothing then gets done.
Remember the brouhaha when oil hit $70/barrel several years ago? And then, as it sank down to $55, people forgot about it, and only noticed it again when it hit $80-90.
The ancient Greeks had a saying for it: “mithridated” from the tale of King Mithridates: building up a resistance to small amounts of poison, until, like Mithridates, you are resistant to larger ones.
TexasJew on September 2, 2008 at 8:57 AM
Amazing, since drill drill drill got started oil prices have fallen almost forty percent. But now is not the time to slacken for the next crisis may be irreparable. Drill here, drill now, and drill Peelousi Reid out of their leadership positions!
eaglewingz08 on September 2, 2008 at 8:58 AM
To a degree, yes. I’m still worried about a repeat of what happened after the 70’s crisis. Things got a little better (more stable), the threat of imminent disaster was reduced, so Americans turned over our energy policy to the environmentalists and pretty much did nothing to secure the future. We’ve been reaping the rewards of that choice with high prices at the pump, terrorism funded by oil money, foreign policy throughout the west being swayed by oil dependency, and (ironically) a more polluted world because we didn’t push forward with the (partial) solutions we had (nuclear power, etc…).
After the big oil producers maintain prices at a level we will now accept for a while, will we once again decide to just go about business as usual and do nothing beyond talking about solutions???
taznar on September 2, 2008 at 8:58 AM
New auto tech, the Chevy Volt E-flex system and the rest, will drive oil way down in the future, to where it’s just another thing that burns and not OIL.
silverfox on September 2, 2008 at 8:59 AM
Who was the not to informed individual who was all a twitter about a hurricane raising the price of oil?
dtrumpet on September 2, 2008 at 9:03 AM
You know, I’m having trouble grasping how the Democrats who seem to think that the Alaska of which Sara Palin is Governor is such an insignificant and worthless place, also think it is so precious that tehy will risk our economic colapse to prevent drilling a hole in it.
MikeA on September 2, 2008 at 9:05 AM
A $41 dollar drop in the price of oil from the summers high. Probable doesn’t have anything to do with the rising dollar, Americans staying home on traditional driving weekend, or the Presidents desire for more drilling at home.
I only hope that the rapidly falling price doesn’t stop the push for drilling offshore and drilling in ANWAR. If we are going to pay a premium price for gas and oil, I would rather pay an american company that pays workers here at home.
In my home state of Indiana, we produce about 1.7 millions barrels of oil a year. That’s about an hour and forty five minutes worth of the oil america uses each year. Know we Hoosiers can do better than that.
Tommy_G on September 2, 2008 at 9:06 AM
It’s going to go down to below 60 bucks a barrel by the end of the year. Demand destruction has occurred. The olympics are over so China isn’t hoarding oil. OPEC has said that they feel comfortable with oil at 60 dollars a barrel.
Trend is down and it will be down for a while. Wish I could play it. Short (buy put options) USO for all you home gamers wanting to make a few bucks.
ThackerAgency on September 2, 2008 at 9:06 AM
Thanks.
Wethal on September 2, 2008 at 9:07 AM
. . . and the world is in a recession primarily because of the high price of oil.
ThackerAgency on September 2, 2008 at 9:07 AM
I like this option better:
The United States may start adjusting the leadership of OPEC nations to keep the price below $25.
Akzed on September 2, 2008 at 9:08 AM
New auto tech, the Chevy Volt E-flex system and the rest, will drive oil way down in the future, to where it’s just another thing that burns and not OIL.
silverfox on September 2, 2008 at 8:59 AM
Like Karl Marx saying in “Das Kapital” that we would someday be using gold to line our toilets.
And what about the billions and billions of barrels of oil and cubic feet of gas that it takes to produce cars?
That is the kind of “pie in the sky” thinking that the Dims are so good at with their phony wind turbines and solar nonsense and no-drill policies.
Read my previous post.
We have oil, gas, coal and nuclear. Period.
Two of those fit into 99.9% of all vehicles.
Two of them are needed for economical electicity generation.
TexasJew on September 2, 2008 at 9:09 AM
MikeA on September 2, 2008 at 9:05 AM
A point worth repeating ;)
fluffy on September 2, 2008 at 9:10 AM
Maybe it’s because the world is a tad bigger than the US?
OldEnglish on September 2, 2008 at 9:13 AM
OPEC gets that with Palin as a VEEP candidate McCain is serious about fixing the problem.
sven10077 on September 2, 2008 at 9:14 AM
Well, it sure makes Barack Obama and Nancy Pelosi look stupid for suggesting that Bush release oil from the Strategic Petroleum Reserve. I’m sure the media will be all over this….
***crickets***
rockmom on September 2, 2008 at 9:15 AM
This will be noted in the history books as the “Bush-Palin” affect. Or how the global markets are influenced by seemingly small events, but are actual harbingers of new policies.
JimK on September 2, 2008 at 9:26 AM
I think Sarah Palin could handle the caribou infestation.
rbj on September 2, 2008 at 9:38 AM
It is new auto technology, but it’s old locomotive technology!
DrSteve on September 2, 2008 at 9:48 AM
Big S,
I think all of the talk about drilling and going after every alternative energy source are major reasons why oil IS dropping. Many predicted it. Republicans need to keep talking saying “Drill Now!” It is the “right” thing to do and will help our economy going into the election.
Star20 on September 2, 2008 at 9:48 AM
I read an article recently that made a pretty convincing case for ‘alternative energy’ being the next investment bubble. The article pointed out that federal, state and even local governments have already allocated billions for the promotion of alternative energy. If you’re inclined to speculate in such things, take a look at the Guinness Atkinson Alternative Energy Fund (GAAEX). As far as I could determine, it’s the only no-load global fund in this space. Don’t bet the farm.
RedWinged Blackbird on September 2, 2008 at 9:51 AM
Bad news for OPEC…good news for us.
But let us not rest on this current dip, keep up the pressure on the tech sector to work on the next answer…and it ain’t ethanol and other food-based fuels either!
http://www.ArmchairEnergist.com
ArmchairEnergist on September 2, 2008 at 9:52 AM
Could be an influence – but an avowedly anti-drilling candidate still stands a better than 50% chance of winning the election. There are plenty of other things going on in the world that are influencing the price of oil, and we can’t be so myopic as to attribute them to domestic politics here in the USA – no matter how hard Larry Kudlow bangs his drum. I saw a study somewhere that showed that opening ANWR to drilling would only decrease the price of a barrel of oil by somewhere between $0.40 and $2.00 at peak production, if current trends are extrapolated 10 years from now. I don’t think a $40 change is the result of a little talk in Washington.
Big S on September 2, 2008 at 10:00 AM
Remember the brouhaha when oil hit $70/barrel several years ago? And then, as it sank down to $55, people forgot about it, and only noticed it again when it hit $80-90.
TexasJew on September 2, 2008 at 8:57 AM
Good point. That’s what I’m concerned about. The more I think about the selection of Palin for the veep slot, the more I’m convinced that beyond rallying the base she was chosen to make the push for domestic energy production especially in Alaska.
Palin has great appeal for a broad swath of Americans who will support any and all efforts in that direction. We cannot afford to forget $147/bbl oil. Although we’ve had a welcome reprieve lately it won’t last as long term global demand is not going to subside.
We need to get busy now, create jobs for Americans, work on alternatives and position this country to remain competitive in the years to come.
Cody1991 on September 2, 2008 at 10:03 AM
DrSteve, if you’re talking hybrid technology, which is what
diesel/electric is, the automotive side of it predates anything the railroads did by about 35-40 years.
BillH on September 2, 2008 at 10:35 AM
You know the one thing that the MSM is forgetting or not wanting to mention is that the pick of Sarah Palin as McCain’s VP may have something to do with it. She is from a state that has more oil than the entire middle east and if we decided to drill there. The sheiks would become nomads again and began trading camels instead of oil
ConservativePartyNow on September 2, 2008 at 10:35 AM
China was
stockpilinghoarding oil in the run-up to the Olympics so that they could shut down the coal fired powerplants in the vicinity of Beijing and use deisel powered substitutes in order to mitigate the pollution. Also, they didn’t want any embarrasing fuel shortages during the games. China was tryin’ to put their best foot forward and display the marvelous results of totalitarian, fascist, government…But, now that the olympics are over AND they are feeling the same slowdown as the rest of the globe-’sfunny how de prise come tumblin’ down!!!
That said you can count on OPEC to cut production; the hell with all of the rest of us! We should all collectively add an “energy surcharde” to all products that the OPEC nations need to import-just to send them a message about the artificially manipulating the price of necessary goods and services. But we won’t, since we’re free marketeers and not policy hypocrites like most of our “trading partners…”
The best answer?
DRILL, DRILL, DRILL; and develop more alternatives here at home !!!
I can imagine a sweet day comin’ down the line in the future; perhaps 15 years from now. We’ve developed a viable alternative transportation fuel as well as FUSION nuclear power. Only too happy to supply our European allies, we all enjoy a nearly oil free existence-except for the Russians, Chinese, and some other, hostile, developing nation. The spot price of crude is around 15/bbl…
AND WE’RE ALL ABLE TO THUMB OUR NOSES AT THE MIDDLE EAST ARABS, AND HAVE ABSOLUTELY NO CONCERN IF THEIR SOCIETIES AND ECONOMIES GO BACK TO THE STONE AGE !!!
RocketmanBob on September 2, 2008 at 10:45 AM
And Todd Palin works in oil fields as a union worker.
New Republican ad:
Domestic oil production — keeping our energy dollars here rather than going to nuts in Venezuela or Saudi Arabia, plus creating good, union jobs.
rbj on September 2, 2008 at 10:48 AM
I beg your pardon, I didn’t quite catch that. :)
OldEnglish on September 2, 2008 at 10:49 AM
I am sure they are worried. How are the Saudi’s going to pay for there plain’s, car’s and palace’s, and jihad.
jharada on September 2, 2008 at 10:58 AM
Sure are some good posts by apparently knowledgeable people here. Thanks for giving me things to think about.
TooTall on September 2, 2008 at 12:06 PM
Good Question! I’ve always wondered why we pay the very same one’s who slammed them planes into the trade center. I mean, it’s the same damn Religion.
We need to drill, produce HERE and not buy from the idiots.
Remember, Jimmy Carter was the one who got us into that mess.
LibertarianConservative on September 2, 2008 at 12:11 PM
Everytime an American drills a Saudi loses a palace.
- The Cat
MirCat on September 2, 2008 at 12:38 PM
FYI, Los Angeles is built in top of a large pool of oil. Ever heard of the La Brea Tar Pits? Almost all of LA was built by a guy (forget his name) who owned an oil field right smack in the middle of what is now LA. It’s all on display right there in the La Brea Tar Pit Museum.
There are still wells there, but inside buildings so they can’t be seen. There is even a pump right on the Hollywood High School campus.
Every 5 years, the amount of oil seepage off shore equals the Valdez spill. Drilling here would actually help reduce natural leakage.
Now, local cities are getting creative about generating lost revenue. Drill her, drill now, drill in my back yard.
TheCulturalist on September 2, 2008 at 1:38 PM
It’s only a short-term, temporary turn of events. Once those economies heat up again, oil will return to its old highs.
You’re right, and that’s exactly what OPEC is hoping. Oil priced at $!00 a barrel doesn’t scare OPEC. Americans talking about a future based on alternative energy that isn’t exportable or subject to world fossil fuel prices- is what scares OPEC. If the US goes alternative, it will bring Iran and Venezuela to their knees begging for diplomacy with the West.
If Republicans are foolish enough to say that Palin has the answer- drill in Alaska- and nothing else needs to be done, then the Arabs have already won. Remember the Pickens commercials- the US has only 3% of known reserves while consuming 75% of worldwide supply. China and India have just started to grow middle classes that can afford cars and other energy consuming products. A future based on alternative energy is the only way for American to protect its economy and free our dependency from the Middle East.
bayam on September 2, 2008 at 1:42 PM
The entire point of “Drill here, Drill now” is too often misunderstood.
It is not about keeping the US on the oil economy forever.
It is not a slap at alternative energy sources.
It is, however, about providing affordable oil for the next 20 years as we transistion from an oil-dependent economy to one where oil is simply another choice, or source, for fuel/energy.
We will never ever totally get off the oil economy.
The list of products made and products we depend on daily that require oil for their production is huge…thousands and thousands of items…burning it to power our SUV’s is just one of oil’s uses.
But, switching out to another fuel base. a more diversified fuel base, a fuel base we own entirely, will take time for development, tweaking, testing. The simple example of how well corn-based ethanol has done is why we need to buy time for rational development of alternatives. Burning food for fuel is a dumb idea in any economy. But, look how many jumped aboard that bandwagon, and then had to ponder whay so many food prices went off the charts.
But, for the futures market, and the dependence of the oil-states on our dollars (euros, yuan, yen, whatever) our getting off our duffs and drilling here, and drilling now, and getting government out of the way of the free market will bring the price of oil down in both the short run and long run, and will wean us away from Venuzuela and the Saudis, and others for our needs…and hit them in the pocket book as well, strengthening the dollar along the way.
That purported 3% of “known” reserves comes in mighty handy for that transition. The amount of “unknown” reserves depending on the sources of that information varies between 5% to 20% of the global oil/gas potentials. Not a drop in the bucket, I might add.
The old tired meme that if we drill now we won’t see any benefit for a decade or more is patently false. The same sort of meme that drilling now would only bring the price down a few pennies a gallon is also patently false.
But…if we do not drill here, and drill now…the Chavez’s and Saud’s and Putin’s of the world can comfortably dictate production, thus dictate cost, and we wil never break that strangle hold as we will be unable to have the energy we need for the two decade or so transition from a primary oil-based economy to one with multiple energy bases.
Why this cannot be understood…well…it boggles the mind why so many are so willing to accept Chavez, the Saud’s and their fiefdoms, Imadinnerjacket and Putin dictating terms to us.
Face it, without oil and gas, the Russian economy today would resemble Chad for the most part, likewise Iran, Saudi Arabia and a host of other oil-rich nations.
coldwarrior on September 2, 2008 at 2:01 PM
Once upon a time, this was true. However, technology marches on, and there are now a variety of new in-situ processes for oil shale pyrolysis and retorting, which doesn’t require the shale to be dug up first. Instead, you literally drill. Afterwards, there’s a thermal process to crack out the oil without having to dig for it. This radically reduces the footprint involved.
Check the Wiki page on Oil Shale Extraction for more details.
Being in Colorado, this is a pretty big deal for us.
VekTor on September 2, 2008 at 3:26 PM
Being in Colorado, this is a pretty big deal for us.
VekTor on September 2, 2008 at 3:26 PM
A whole lot cleaner, too. Who’s that Colorado senator standing in the way of this?
coldwarrior on September 2, 2008 at 3:35 PM
Stop typing and pick up the phone.
We all know the cause, the effect and the solution.
Phone your Congressmen and Senators.
crazy texas on September 2, 2008 at 3:56 PM
“When will we finally begin to take responsibility for our own needs and keep our money in the US?”
Maybe sooner than people think.
Maybe.
TallDave on September 2, 2008 at 4:47 PM
Here’s are some unresearched, winging-it comments on my part:
The arguments that T-Bone Pickins’ commercials are peddling are deliberately misleading.
First of all, I guarantee you that his “3% of the world’s known reserves” malarkey doesn’t include the 1 trillion+ barrels in shale oil. Thus IMHO his whole pitch is disingenuous on its face. He might be able to fall back on official numbers discussing “known reserves in traditional oil wells, yada yada yada” as a defense, but he has to know that is not even close to the whole pie.
Not to mention, he never points out that wind power is primarily for electricity generation, which is something that nuclear can more than cover if given the chance, and more efficiently. (I shudder to think what France would look like today if they tried to supply 85% of their electrical power using windmills instead of E = mc^2 …).
“Ah, but they don’t have all of that wasteland in west Texas that we have…”
And do we really think it’s smart to build and maintain all of those wind turbines over thousands of square miles? Also, when the world hears more about the environmental effects of wind power (such as LFO noise pollution) I imagine the cost/benefit calculations will be even more in favor of nuclear power.
Great post(s), coldwarrior et al!
RD on September 3, 2008 at 2:09 AM
TallDave: Amen on the polywell fusion research. Among other great news, hopefully it also mitigates the impact of us not finding any He3 on this isotope-forsaken planet!
RD on September 3, 2008 at 2:12 AM
Ken Salazar (D) is our Senatorial roadblock. In Congress, Mark Udall is one of the biggest pains in this regard. He’s getting a bit famous for skipping out on the vote that would have prevented Congress from going on extended vacation. He had said he would support keeping Congress in session until a vote on the drilling bans, and then didn’t show up for the vote… which was lost by one vote.
VekTor on September 3, 2008 at 11:10 AM
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