As the weather was getting better across the United States the price of oil started to increase at a fast rate. Many people were complaining about how high prices were at the pump. On July 11th, 2008, the price of crude oil traded on the New York Mercantile Exchange, now owned by the Chicago Mercantile Exchange, at an all time high of $147.27. As of September 2nd, 2008, the price of crude oil finished the trading day at a 10- month low at $109.23. When I first found out that the price of oil was on the decline I was a little bit confused because alot of stock and energy analysts said that the price of oil was going to increase above $150. The largest investment bank in the world, Goldman Sachs, made a prediction that the price of oil could go up to $200. I was very interested to see why the price of oil went down about 26% in just over one month, so I did some work about why oil went up and down so fast.
A few reason why the price of oil has dropped so much is over a month is because of declining demand in the United States and abroad by using some alternative sources to oil, and because of an increase in the US dollar. As the price of oil increased, the average consumer began to spend his or her money more wisely which led to consumers making adjustments on what they were spending at the pump. Also, when the United States dollar was traded on the foregin exchange market (forex) in for another currency such as the Euro, then the return that you would get back is in the foreign currency would be worth more than trading in the foreign currency in for the United States currency.
Another reason why the price of oil went up so much and is now coming down is because during the summer more people tend take vacations using their cars and other sources of transportation that may use alot of oil. In the winter a lot of students have school, and the weather is not always that good in the Northern Hemisphere as in the Southern Hemisphere. This have the effect of less traveling that would occur. Companies such as Exxon Mobil, Chevron, British Petroleum, Royal Dutch Shell and ConocoPhillips can raise the price of gasoline that people pay at the pump so much because there is not a clear effective alternative that was non petroleum based that would fuel cars that well. This means that drivers would have no choice but to refuel their cars with gasoline at gas stations. As a result of the raise in gas prices, Exxon Mobil earned a record $11, 680 million dollars of net income in the second quarter of 2008. That is the most any company has ever earned in one quarter. Also, not as many people travel when students are not in school. As the summer starts to end the price of oil should continue to drop because not that many people are going travel across the country and the oil companies can lower prices so they will not have the consumers look for as many alternatives.
The reasons that are listed above are my opinion on why the price of oil is on the way down and the price that you are going to pay at the pump should be on the decline.
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Thank you for this informative post. Your insight about the most recent patterns of currency speculation is really taking a global perspective on the problem. All of these factor have certainly contributed to the extremely high prices, and since many of them, like consumer travel behaviour, have changed since the school year started, I, too, anticipate falling prices, but I would venture that next summer, and every summer hereafter, prices will continue to go up to higher and higher records as the same and new circumstances converge again. Unless we invest in the infrastructure necessary to give consumers other options, we may very well be facing the $200 a barrel that Goldman Sachs predicted.
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