What is the Fair Value of Oil?

For much of the past two years, we (meaning most of the world) have been complaining about high oil prices.  As the price per barrel climbed past once unthinkable milestones – $75, $100, $125 and then nearly $150 – the complaints grew louder and louder.

Now that the price of a barrel of crude oil has fallen in excess of 50% from this summer’s record high (after falling as much as 60% before this week’s slight rebound) many of the world’s oil producers – OPEC in particular – are complaining.

In fact, even after recently announcing a 1.5 million barrel per day production cut, OPEC is rumored to be considering another cut of similar size in order to defend an oil price of between $80 and $100 per barrel.

With all of this being said, I think it begs the following question: what exactly is the fair value of oil?

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Have Falling Gas Prices Affected Your Lifestyle?

Falling gasoline prices have come as a welcome relief to many families, especially in the midst of the current financial and economic upheaval.  Since the middle of July, the price of gas has fallen from a record high of $4.12 to today’s price of $2.39 per gallon – a decline of nearly 42%.

While this decline is certainly very significant and has gone a long way to ease our pain at the pump, has it been enough to drastically alter your lifestyle and spending habits?

According to a recent poll on GasBuddy.com, the responses seem pretty evenly split between those who have been affected by lower gas prices, and those that haven’t.

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Where Will Gas Prices Bottom Out?

Over the past four months, we’ve seen an unprecedented decline in the price of gasoline.  After hitting its record high of $4.12 on July 14, the national average price of gas has fallen over 40%, and now stands at $2.40 per gallon.

The last time gas prices were this low was back in March of 2007 – or roughly 20 months ago!

With these being pretty tough economic times, this recent decline in prices is certainly welcomed by many Americans.  That being said, I think I speak for many of us when I say that I certainly wouldn’t mind gas prices dropping a little bit further.

This of course begs the question, where are gas prices going from here?  Are we going to end up with sub-$2 gas for the first time in four years, or have prices finally bottomed out at the current levels?

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National Average Gas Price Continues to Fall – Now at $2.40 per Gallon

The national average price for a gallon of regular unleaded gasoline now stands at $2.40 per gallon – a price not seen since early March 2007.

Gasoline prices are now down nearly 42% from the record highs set back in mid-July of this year.  Over the past month, the price of gas has fallen by nearly 33%; even over the past week, it’s fallen over nine percent.

In fact, prices have fallen so far, that today’s average price is 13% below what it was exactly one year ago.

There are only two states reporting an average gas price above $3 per gallon: Hawaii at $3.61 and Alaska at $3.32.  Currently, 34 states plus Washington, D.C. are reporting an average price below $2.50 per gallon, with Oklahoma reporting the lowest average price at $2.01 per gallon.

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Gas Prices Fall to Lowest Levels in 19 Months

For the first time since April 2007, the national average price for a gallon of regular unleaded gasoline has fallen below the $2.60 mark.  And from the looks of things, it appears as if there’s still plenty of room for prices to fall.

As of this afternoon, the national average gas price stood at $2.57 per gallon.  Over the past month, the price of gas has fallen nearly 30%, and is now down nearly 40% from the record high prices set back in July.

Gas prices are falling so quickly that they’ve lost nearly 10% over the past week, and have fallen so far that they are actually 8% below where they were at the same point last year.

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National Speed Limit to Help Save Gas? Not so Fast!

Remember the days of $4 gasoline?  Ah, they seem so long ago – even though it was less than three months ago.

Anyway, one of the many proposed ideas to help ease the pain at the pump and help drivers consume less gasoline was to implement a national speed limit, which would reduce the maximum allowable driving speed to top out at 55 miles per hour.

However, with all of the recent Federal intervention and meddling in an effort to revive the economy, one would imagine Congress has much bigger things to worry about.  Besides, do we really want the government to step in and impose even more regulations upon us?

According to a recent poll on GasBuddy.com, a vast majority of drivers are against a government mandated speed limit.

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Gas Prices Lower Than They Were a Year Ago

For the first time in what feels like forever, the price of gasoline is less expensive than it was exactly a year ago.

While this would usually be reason for joy, it appears that the major factor behind the significant decline in the prices of oil and gasoline is the rapidly deteriorating world economy.

Today’s national average price of gas stands at $2.73 per gallon, which is three cents below where it was exactly 12 months ago.  While $2.73 for a gallon of gas certainly isn’t cheap by any stretch of the imagination, it’s certainly a heck of a lot more affordable than what we dealt with for most of this year.

Since hitting a record high of $4.12 per gallon on July 14, the price of gas has fallen by over 33%.  Over the past month alone the price of gas has fallen nearly 25% – thanks to the credit crisis and fears of a very deep and painful recession.

Currently, there are only five states reporting an average gas price above $3 per gallon, with Alaska having the highest state wide average price at $3.60 per gallon.  Conversely, there are now ten states reporting an average gas price below $2.50 per gallon, with Oklahoma having the lowest state wide average price at $2.27.

In an effort to help stem the tide of falling oil prices – which are down nearly 60% from this summer’s record highs – OPEC has announced that it will cut crude oil production by 1.5 million barrels per day.  However, because this cut was less than the expected 2 million barrel per day cut, the price of oil fell about $3 per barrel after the announcement.

This likely means gas prices will continue to fall in the near term.  While this is good news for anyone with a car – additionally, this will effectively kill inflationary pressures – the trade off is we’re having to deal with the worst economy in decades.

Unfortunately, it looks like things are going to get a lot worse – higher unemployment, further declines in stock and home prices, and sinking corporate profits – before they start to get any better.

Suck It, OPEC.

Apparently a lot has happened since my last post.

The stock, credit and housing markets have been in shambles; the price of oil has now fallen over 50% from its record highs set this past July; and the price of gasoline has dropped well below the psychologically important $3 mark.

As of this afternoon, the national average price of a gallon of regular unleaded gasoline stood at $2.88, which is about 30% below this summer’s peak prices.  Over the past month alone, the price of gas has fallen nearly 23%.  Additionally, the price of gasoline is now only 7% higher than what it was at this point last year.

Currently every state is reporting an average price below $4 per gallon, and there are only 13 states with average prices above $3 per gallon.  Hawaii has the highest state-wide average price at $3.77 per gallon, while Oklahoma has the lowest state-wide average price at $2.40 per gallon.

Unfortunately, this record price decline might be nearing an end.  The Organization of Petroleum Exporting Countries (OPEC) will be holding a meeting this coming Friday to discuss massive production cuts in order to protect oil prices.  It is widely speculated that OPEC will announce daily production cuts of between 1.5 million and 2 million barrels.

Given the world’s current economic state, it is very doubtful that this production cut will cause oil prices – and subsequently gasoline prices – to shoot back up towards their record highs.  However, it’s not unreasonable to expect prices to, at the very least, stay at their current levels or rise slightly.

Price of Oil Down Over $10, Gasoline Prices Keep Dropping

Thanks to growing fears that the United States has entered a prolonged recession – with some saying we’re about to see the second Great Depression – the price of oil fell over $10 per barrel today and closed below $100 for the first time since last Monday.

Most of today’s market action – marked by the DOW’s single largest daily point drop, the S&P and NASDAQ both losing roughly nine percent and oil’s second largest daily price decline – came about thanks to Congress balking at the proposed $700 billion Wall Street bailout.

This bailout, which was agreed upon in principle Sunday evening, was meant to help restore confidence in the financial markets by having the Treasury Department buy hard to value mortgage backed securities from struggling financial firms in an effort to get them lending to each other, businesses and consumers.

In addition to the House’s vote, several European bank failures helped to push the dollar up against the euro.  As I’m sure you’ve come to find out over the past several months, a stronger dollar tends to push commodity prices lower.

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Gas Prices Got You Down? Buy a Scooter!

While the price of gasoline has skyrocketed over the past year, many commuters have turned to creative ways to help ease the pain at the pump.  One of these ways is buying a scooter.

According to an article written by Catherine Clifford for CNN Money, scooter sales are up 66% in the first six months of 2008 when compared to the same period in 2007.  Considering many scooters get 80 MPG or better, it’s certainly easy to see why they’ve become so popular as of late.

In Clifford’s article, Paolo Timoni, president of the company which owns Vespa, a popular brand of scooters, talks about the transition in the perception and usage of scooters:

“About 5 years ago, most people were buying the motor scooter more as a recreational product to enjoy on the weekend.  Nowadays, most of the people that buy this vehicle buy them as an alternative transportation vehicle.”

If gas prices continue to climb as many analysts are predicting, I’m sure more and more people will begin to look into getting one of these vehicles as their primary mode of transportation – especially if they live in an urban area.

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