Bloated Oil Prices Mysteriously Plummet

Bill Georgevich reporting

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The per barrel cost of oil has plummeted 50% from $140 per barrel to under $70 a barrel in less than 4 months; shocking consumers and oil producers alike. In a recent emergency meeting, OPEC ministers admitted that there really is no relation between demand and prices. Despite cutting production by 1/2 million barrels, oil prices continue to follow the stock market.

The AP reported that on Thursday, October 23, Iran called on OPEC to slash oil production by a daily 2 million barrels to stop a steep slide in prices that has left crude at its cheapest since last summer.

Other oil ministers of the Organization of Petroleum Exporting Countries also said output cuts had to be discussed at their meeting Friday — while suggesting that a fine line had to be walked to stop the market's decline without further denting shaky world economies.

Spooked by prices that have slid more than 50 percent from record highs of around US$147 a barrel in July, the 13-nation OPEC has little choice but to scale back production.

OPEC Secretary-General Abdullah al-Badri said before a meeting with Russian President Dmitry Medvedev on Wednesday that he would not ask Russia for oil production cuts as global prices fall, and analysts said Russia was unlikely to agree to coordinated production cuts, given that it already is battling with falling output as West Siberian oil fields mature.

In the past, sizable cuts in OPEC production have led to significant jumps in prices. But with demand already falling due to the economic downturn in the U.S. and other major consumers, even a large reduction may fail to prop up the market.

Meanwhile, in America, the nationwide average price of gasoline fell to less than $3 a gallon — to $2.991 on Saturday and then $2.954 on Sunday, travel organization AAA reported. On Monday, it dipped again — to $2.923.

It's the first time gas has been that cheap since February. And pump prices will likely keep falling. Based on the current wholesale price of oil, consumers can expect to pay $2.80 or lower by Halloween, says Peter Beutel, president of Cameron Hanover, an energy risk management firm. "If everything stays the same, we've got more coming," he says.

When the financial markets imploded in late September, U.S. drivers slammed on their collective brakes. Demand for gasoline, which had been slipping 2% to 3% each week for most of the year, sank 9.7% in the week ended Oct. 10, according to the Department of Energy.

The financial market meltdown "kicked demand loss into another gear," says Beutel.

The state average on Sunday was under $3 in 32 states, according to AAA. Cheapest: $2.539 in Oklahoma. Most expensive: $3.899 in Alaska.

"The economy is quite sick, and that's why demand is down …, and that is the major, if not singular, cause of the cheap-gasoline effect," says Tom Kloza, senior analyst at the Oil Price Information Service, a consulting firm.

When fuel prices drop before a national election, says Kloza, some people suspect the administration is interfering with the market to curry favor with voters. But Kloza says the global petroleum market is too big and complex to manipulate like that.

Is global warming dead?

Bill Georgevich reporting

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Many Republicans who already thought carbon cap and trade regulation was bad for the economy, now say that with the growing global economic crisis, American energy companies cannot afford to be green. Like the “Drill, baby, drill!” hysteria promoted by Governor Sarah Palin in the Vice Presidential debate, Republican congressmen and senators are warning that global warming will just have to wait.

The AP reports:

Democratic leaders in the House and the Senate, and both presidential candidates, continue to rank tackling global warming as a chief goal next year.

But the focus on stabilizing the economy probably will make it more difficult to pass a law to reduce carbon dioxide and other greenhouse gases. At the very least, it will push back when the reductions would have to start. As one Republican senator put it, the green bubble has burst.

"Clearly it is somewhere down the totem pole given the economic realities we are facing," said Tom Williams, a spokesman for Duke Energy Corp., an electricity producer that has supported federal mandates on greenhouse gases. Duke is a member of the U.S. Climate Action Partnership, an association of businesses and non-profit groups that has lobbied Congress to act.

Just months ago, chances for legislation passing in the next Congress and becoming law looked promising. The presidential candidates support mandatory cuts and a Democratic majority is ready to act on the problem after years of the Bush administration resistance.

But the most popular remedy for slowing global warming, a mechanism know as cap-and-trade, could put further stress on a teetering economy. Under such a system, the government would establish a market for carbon dioxide by giving or selling credits to companies with operations that emit greenhouse gases. The companies can then choose whether to invest in technologies to reduce emissions to meet targets or instead buy credits from other companies who have already met them.

In an interview with The Associated Press, Representative Rick Boucher (D-Va.), said that in light of the economic downturn, a bill that would give polluters permits free of charge would be preferable. "The first way we can control program costs is by not charging industrial emitters," said Boucher, who released a first draft of a bill this past week with the chairman of the House energy and commerce committee, Representative John Dingell ( D-Mich.). Giving away right-to-pollute permits was one of the options.

Other Democrats, however, see a cap-and-trade bill - and the government revenues it would generate from selling permits - as an engine for economic growth. Democratic presidential nominee Barack Obama supports auctioning off all permits, using the money to help fund alternative energy.

"If you see this as a job creation opportunity for the U.S. to develop the products that are then sold around the world, then you should be optimistic about what the impact of passage would mean for the American economy," said Representative Edward Markey (D-Mass.).

Conservative Republicans, who were never fans of a law to curb greenhouse gases, have used the economic downturn as a rallying cry. Oklahoma Senator James Inhofe, the senior Republican on the Senate environment and public works committee, in a blog entry this month, criticized 152 House members for releasing a set of principles to tackle global warming in the midst of the economic turmoil. "The current economic crisis only reinforces the public's wariness about any climate bill that attempts to increase the costs of energy and jeopardizes jobs," Inhofe said.

Representative Joe Barton (R-Texas) took the argument a step further when he said the Boucher-Dingell bill could lead the country "off the economic cliff." Even supporters of federal regulation of greenhouse gases acknowledge the difficulty given the state of the economy.

Senator John Warner (R-Va.), a lead sponsor of a Senate bill to curb greenhouse gases that failed this year, acknowledged that the economy could delay when reductions in carbon dioxide would start. Warner told The AP that any bill should allow the president to decide. "We must continue to think and devise a piece of legislation that will enable the president of the United States to control timing ... dependent on the president's analysis for the ability of the economy to assume the financial burdens," he said.

The U.S. is not alone. As the economic crisis has spread to markets across the globe, work to curb greenhouse gases elsewhere has stalled.

Earlier this past week, Rajendra Pachauri, head of the UN climate panel, said discussions about global warming solutions were "on the back burner."

Pachauri shared the 2007 Nobel Peace Prize with former U.S. vice-president Al Gore for their work on climate change."I'm absolutely sure that climate change will be the last thing people will think about at this point in time," he said. "Sooner or later, they will come back to it."

The upside is that in hard economic times, and with high energy prices, the amount of pollution in the air tends to decline. But environmentalists say it won't be enough to stop temperatures from rising.