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