Crude oil prices have dropped over 70% from its peak in July when many analysts (including big names like Goldman Sachs) were raising the possibility of $200 oil. Well it never reached that level and as recession kicked into high gear and actual demand, not quantity demanded, tapered off we saw a complete reversal with oil now consistently trading below $50.
Well hold onto your hats because the analysts are back with new predications. Michael Lewis, head of commodities trading at Deutsche Bank, now sees oil bottoming out at $30. He also believes production decreases, believed to be effected any week now by OPEC, will not see a reversal for another 2-3 years. This will keep supply low and the margin between supply and demand tight.
So what does this mean for America and consumers? Potentially cheaper gasoline prices are ahead (could we go to a national average of $1.50?).
But don’t get too excited and run out to buy an SUV tomorrow. I believe these depressed oil prices are temporary… very temporary. By next July America’s demand will have risen due to increased infrastructure projects (see Obama’s latest spending plan), the eventual bailout of the U.S. auto industry (yes I said it and no it is not a good idea) and this country’s short-term memory which forgets about hybrids, fuel efficiency, and alternative energy as soon as gas drops below $2.50 per gallon.
I believe we need a conservative energy policy that promotes continued decreased consumption by consumers and allows for real alternatives, not stop-gaps like ethanol and hydrogen fuel cell technology. The floor for oil prices may be still lower, but it is our own amnesia on the topic that will have us bounce right off of it.
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