Friday, December 19, 2014

Op-ed: Falling Gas Prices ... a Trend That Will End

Falling Gas Prices...a Trend That Will End 
By: Diane Sori

As always...NO matter the international turmoil it's still all about the economy...and oil.

And now a gift from Santa has arrived as just in time for Christmas gas prices have fallen to a five-year low...from roughly $3.68 a gallon in June to now down below $2.60 in most markets... saving we purchasers about $60+ a month. But like all good things this gift does come with caveats that the current savings have blinded most to. So while 'We the People' are happy dancing thinking we have triumphed over the likes of OPEC nothing could be further from the truth for as the price of oil falls political instability is increasing within the main oil producing countries. And with that instability comes the fact that reduced prices means less profit for the oil companies, and that is something they will NOT allow to go on for too long for just like any business the oil giants are as profit driven as the next guy.

Also remember, as oil prices per barrel fall...mostly because of a slow-down in demand in Europe and Japan where there are worries about deflation...this just adds to the worries about the ever-increasing demand and need in other countries such as China. And this in turn raises serious concerns for the oil companies NOT just about their earnings, but also about year-end tax selling putting more pressure on them as well...pressure which they will take out on we consumer. And as OPEC continues to manipulate oil prices...but with them NO longer having the sole upper hand in price setting because they failed to stabilize falling prices after their last's the 'free market' itself who will now for the most part be setting the global cost of oil.

But the good news...for the short term that that this could mean that crude prices might actually drop to $50 or less per barrel over the next few months. In fact, OPEC could actually push prices down as low as $40 per barrel in an attempt to regain said upper hand by taking on Russia as well as the U.S. shale industry. But that move could put the weakest oil producers out of business with the result being producers like Nigeria actually going bankrupt as financial contagion takes hold in western markets.

And even with oil shale production increasing big time out of North Dakota...another good thing...there is still a downside to this because there is a slowdown in production occurring in the Bakken oil fields. And lest we forget that Russia also plays a part in determining the price of oil as Russia supplies the oil for most of Europe. And with the Russian ruble losing its value because of the ongoing drop in oil prices along with its ongoing problems with Ukraine, Putin is putting Russia's economy and military on a war-footing to try and neutralize the hit Russia is taking due to the falling oil prices. So, the stage has now been set and the players are in place NOT for oil prices to continue a long-term drop but for oil prices to actually start rising by the second half of next year and to rise high...very high and within an extremely short period of time.

So much for continuing happiness at the pump.

Also, what most do NOT realize is that there is currently an excess of oil glutting the market and that is the main reason the price of gas has dropped. And while it could possibly take six months or a bit longer to run down the now one million barrels a day of excess oil, it eventually will happen and happen sooner than most think as nations experiencing an industrial boom...nations like China and India for example who are dependent on their ability to import oil...will use up more oil than would normally be using within a given period of time. And that over-consumption of the oil supply...and that includes the excess supply currently on the market...will create the beginnings of the next oil shortage and its always corresponding price increase at the pump.

So, until that excess oil supply is run down...which most assuredly will happen... some larger oil companies have been scaling back plans for future oil drilling and exploration as they wisely wait to see just when that run down happens and by how much the market and OPEC will decide the price per barrel increase will be. And sadly it seems they might NOT be waiting too long for some 'so-called' experts and special analytical reports are predicting prices to start rising and rebounding to $80 or even $90 per barrel in, like I said, the second half of the upcoming year.

In fact, a friend of mine who is very close to the oil business agrees that oil and gas prices will soon start to go up because the above stated oversupply will indeed 'dry up' as the oil people say. But he also said that as the price of oil comes down it will directly affect the ongoing production costs which vary from company to company... production costs as in what it costs to 'pull' the oil out of the ground as it relates to price variations in infrastructure and labor costs. And this in turn will force the shutting down of the more expensive to run wells. Also he spoke of a fact that some might NOT in the rise and fall in oil prices seems to run in six-year cycles and that we are now in a period of cause and effect with the cause being the market is glutted with extra oil, and the effect being the oil companies are wisely postponing projects to tighten their belts as they wait for the oversupply to run down. Thus, the basic concept and application of the principle of supply and demand is now in effect as well.

And while U.S. crude oil prices did top $100 per barrel last summer they have indeed now dropped to around $60 per barrel as a result of NOT only this oversupply but also because of expanded domestic production. And remember too, today the U.S. produces more oil than it imports...actually we are sitting on more oil reserves than Saudi Arabia...but unfortunately most of the oil we do produce does NOT stay within this country but is exported out, a sad fact that keeps use dependent on in Arab...oil.

And that very dependency must end for like Sarah Palin said, America must "Drill Baby Drill" and the sooner the better. It's way past time for this country to stop being held hostage to the whims and wills of both OPEC and the global market... and their puppets like Barack HUSSEIN Obama who wants nothing better than to keep us dependent on them. So please people do NOT think the relief at the pump we are now all enjoying will be a forever trend for it won't, and we need to prepare for the time when we again shake our heads as gas prices creep up and up and nauseum.
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