Analysts Say the Drop in Oil Prices Might Not Last

October 31, 2008 03:20 PM
by findingDulcinea Staff
Declining oil prices might tempt consumers to relax their energy conservation habits, but analysts say prices will likely spike again.

The Latest Reports


At less than $65 a barrel, the price of oil has attracted the attention of consumers and analysts alike. Relief at the pumps is widespread, but neither group seems to think the drop in prices will be permanent.

"Just because I have this little savings in the fuel tank doesn't mean everything else went down," Chris Murphy of Modesto, Calif., told the San Francisco Chronicle. "If there's any savings from anything right now, it's going to go into personal savings."

Analysts at Merrill Lynch say the effects of the $700 billion bailout will actually result in "inflationary pressures to the commodity markets," Seeking Alpha reported.

"This is a very interesting projection," Money Morning Investment Director Keith Fitz-Gerald said. "I have no idea what they’re basing their numbers on. But I certainly wouldn’t dismiss it based on everything I know about global trends, and my own proprietary calculations—which continue to suggest far higher prices for oil and hard assets than even Merrill is predicting."

But with potential price spikes looming on the horizon again, experts say there are other difficulties facing the energy industry.

"The energy crisis is fundamentally a problem of supplies, not of energy demand," Frederic Lasserre, the head of commodity research at Societe Generale in Paris, told the International Herald Tribune. Yet, fueled by the declining price of a barrel of oil, energy companies are less likely to invest in future exploration and production projects.

"Given the constraints on supplies in coming years, this means tight markets are here to stay," the International Herald Tribune wrote. However, analysts caution that the more oil prices continue to decline, "the sharper the rebound will be when the economy—and oil demand—finally picks up."

Preventative Steps for Energy Conservation

As many Americans respond to climate change by reducing energy usage, another threat, perhaps more frightening and immediate, looms on the country’s energy horizon.

Oil—our primary source of energy—is a finite resource, and it is going to run out someday.

Some experts project peak oil output may begin as early as 2010–2012, and that thereafter supply will begin to drop well below worldwide demand.

When that happens, oil’s price will skyrocket. In April, prices were already at record-breaking highs—over $100-a-barrel—and some analysts predicted the price could reach $200, or even $300 per barrel, causing a dramatic shock to the global economy.

The United States currently consumes 21 million barrels of oil per day, nearly 25 percent of total worldwide consumption. Thus, if supply of oil does drop, only a drastic reduction in U.S. demand can avert a shortfall.

Taking preventative steps to reduce individual energy consumption is the most sensible response. The following are the 10 practical ways to reduce oil/energy consumption now:

1. Replace standard incandescent light bulbs with compact florescent light bulbs. This simple change can save an estimated 75 percent in lighting costs. These energy-saving bulbs have become much less expensive and are widely available online.

2. Unplug electronics such as stereos, televisions, computers and kitchen appliances when they are not in use. Plug several appliances into a power strip and turn it off when not in use. In the average home, 75 percent of the electricity used to power electronics is consumed while they are off.

3. Buy only ENERGY STAR appliances, which use less energy. In a typical home, appliances and home electronics are responsible for about 20 percent of the utility bill. A list of approved appliances is available on the ENERGY STAR site.

4. About 90 percent of energy used for washing clothes is for heating the water. Wash clothes in cold water, wash and dry full loads, use appropriate settings for smaller loads and consider air-drying clothes instead of using the dryer.

5. Heating and cooling alone can cost 45 percent of most utility bills. Set the thermostat as low as is comfortable in the winter and as high as is comfortable in the summer, and invest in a programmable thermostat so energy is not wasted when the house is unoccupied.

6. Proper insulation and air sealing techniques can reduce heating and cooling costs by 30 percent. Check for air leaks, or have a professional check, then plug all leaks with caulking or sealant and install proper insulation in the attic, basement walls, floors and crawlspaces.

7. Landscape wisely. Planting trees near your home provides shade and can lower cooling costs in summer months. Shrubs, bushes and vines can also provide insulation. Landscaping for energy efficiency can provide enough energy savings to return the original investment within eight years—sooner if oil prices rise.

8. Keep it slow and steady while driving, and perform regular maintenance on your car. Each five miles per hour you drive over 60 mph is like paying an additional $.20 per gallon of gas. So drive the speed limit—cruise control can help in this effort. Also, keeping tires properly inflated can improve gas mileage by about 3.3 percent.   Many drivers will wait on a long line to save $0.30 per gallon, but properly inflating tires and obeying the speed limit will realize such savings and take less time.

9. Drive less frequently. Walk, bike, use public transportation or telecommute if possible. If daily car use is a must, consider buying a hybrid.
10. Consider alternatives to heating oil, such as natural gas, solar panels, EPA-approved wood-burning stoves or geothermal heat pumps, which use the constant temperature of the earth as the exchange medium instead of the outside air temperature.
Some of these steps require upfront investment, which will be paid back through consequent energy savings.  The higher oil prices go, the quicker the payback. And the cost of things like hybrid cars, energy efficient appliances, and alternative energy appliances will be much higher because demand will climb and supplies may become severely limited, with long waiting lists.

The Reality of Peak Oil

Opinion & Analysis: An extreme view of peak oil’s consequences

Background: Oil prices rising with no relief in sight

Reference: The multi-faceted oil problem

Search for More Energy Saving Tips

Related Topics: Wood burning stoves and hybrids

Hybrid cars

Buying Green at the findingDulcinea Store

Compact florescent light bulbs
Programmable thermostats
'Energy-Efficient and Environmental Landscaping'

Most Recent Beyond The Headlines