Fossil fuels oil-derricks

Published on December 13th, 2012 | by Christopher DeMorro

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U.S. Oil Prices Could Fall To $50 A Barrel

In case you haven’t noticed, gas prices seem to be falling at a fairly steady rate, and the trend shows no sign of reversing. With America’s domestic production on the rise, prices for a domestically-produced barrel of oil could fall to the lowest levels seen in years. But it is unlikely to last according to a new report.

With America’s reliance on gasoline a cornerstone of our economy, domestic production of oil has been a big deal for both political parties. Under President Obama, domestic production of oil is on the rise, though his predecessor George W. Bush really deserves most of the credit/condemnation. With a glut of oil coming from drilling operations in North Dakota, the Gulf of Mexico, and Alaska’s northern reaches analysts expect the price of a barrel of American crude to reach just $50.

But don’t get too excited. Overall, worldwide production of oil is down, though in many places (like Europe) so is consumption. A lot of this American oil is also destined for other nations, meaning that while there will be some relief of the pain at the pump, it isn’t likely to last. Oil companies can’t make a profit on $50 a barrel oil in today’s market, and I wouldn’t be surprised to see them pull some of the same tricks pioneered by Saudi Arabia, essentially turning off the spigots to artificially keep prices high.

Besides that, America still gets a lot of oil from countries with higher oil prices, like Nigeria and Venezuela. So while we may see a small drop in gas prices, like we currently are seeing (according to the AAA Fuel Gauge the national average is down about 14 cents in a month), the effects won’t last long.

On one hand, the idea of paying less for gas is certain to strike a chord American consumers. But high gas prices are a primary driver of both fuel efficiency and the search for alternative energy. As history shows, the price of oil can fluctuate wildly, and for a variety of geopolitical reasons; it is an uncertain source of energy that must bow to the whims of theocracies and dictatorships.

My worry is that if gas prices stay too low, for too long, people will stop buying fuel efficient cars or pushing for alternatives to oil. It has happened before, and it could happen again. Stay tuned…

Source: CNN | Image: Damian Gadal




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About the Author

A writer and gearhead who loves all things automotive, from hybrids to HEMIs, can be found wrenching or writing- or esle, he's running, because he's one of those crazy people who gets enjoyment from running insane distances.



  • Scott S

    “Oil companies can’t make a profit on $50 a barrel oil.”

    ?

    http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

    So the only time periods that oil companies were profitable were between the years 1975 and 1985, and 2005 through present? Sounds like an awful business plan to me.

    • Christopher DeMorro

      @ Scott S

      I was obviously referring to today’s market, but I will clarify the statement.

  • Ben D

    You can not defend $50 crude prices in a couple paragraphs. You need to spend some time researching crude oil and the global implications for changes in prices.

  • Jason Carpp

    Although oil prices will never fall below the $1 mark, I’m glad that prices are dropping.

  • Nixon

    The price of oil cannot drop below the cost to extract the next barrel, or soon they won’t have any choice but to stop production in places where it isn’t profitable. All the drill-baby-drill folks seem to cheer new drilling in ever exotic new places. Deep water drilling, shale oil, north pole, etc. The problem is that the only way these are profitiable is if there are high oil prices.

    And the only reason why anyone would drill in these locations in the first place is because there aren’t enough places left to drill that are cheap to drill. Otherwise the oil companies would still be drilling where it is cheap and making even more profits.

    So we are caught in the middle of a balancing act. Oil goes too cheap, expensive drilling stops and there isn’t enough oil from cheap drilling sites to fill the void. So prices have to go up.

    There is lots of room in the middle where speculators mess with things, and demand can bend. But in the long term the oil ladder can only go up.

  • http://MrEnergyCzar.com MrEnergyCzar

    The marginal price of oil is much higher, so production would have to shut down to make it economically worthwhile, especially the expensive Bakken Tight Oil. Same thing for fracking natural gas, it needs to be above $4, that’s why gas rigs have been closing the past year, it’s too expensive to produce…

    MrEnergyCzar

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