Perhaps, A Bit of Good News About Oil Prices

The News & Advance
Published: May 19, 2008

With oil prices still hovering at near-record highs, a survey of oil and gas industry executives offered some good news last week. A majority of them believes oil prices will drop below $100 a barrel by the end of the year.

That would be welcome relief for beleaguered families who are putting more and more of their paychecks into the gas tank of the family car or cars.

On Monday, oil was fetching more than $127 a barrel. And for now, the end doesn’t appear to be anywhere in sight. Those prices on the commodity markets translate to record high prices for gasoline — prices that reached an average of $3.77 a gallon for regular gas over the weekend. In Virginia, the average price for a gallon of regular set a new record at $3.64, according to AAA Mid-Atlantic.

Among the 372 petroleum industry executives surveyed by KPMG LLP, 55 percent said they think the price of crude will drop by the end of the year. Another 21 percent predicted that a barrel of crude would drop to between $101 and $110, which would offer some relief at the gas pumps.

And why do the oil executives see a drop in the price of crude? The expectation of increased investment in new and renewed sources of oil. Apparently, the price of crude oil has reached the plateau where the executives see the profitability of returning to the oil fields.

“The expectation of increased investment by U.S. energy companies shows oil and gas executives are deeply concerned about energy security,” said Bill Kimble, who oversees the global energy institute at KPMG, the audit, tax and advisory firm.

Crude oil prices have nearly doubled in the past year. Most of that rise has been blamed on rising demand from the rapidly developing economies of China and India.

There’s no unanimity on where the future of oil prices is going, however. Oil price prognosticator Goldman Sachs said last week that oil prices could rise to as much as $200 a barrel within two years. Others have said that prices could plummet to as low as $40 a barrel during the same period. Wouldn’t that be nice?

Meanwhile, conservation of gasoline seems to be on the minds of many auto buyers in Lynchburg. Buyers are beginning to take serious looks at vehicles that get better fuel economy — hybrids like the one manufactured by Toyota that get as much as 48 miles per gallon.

Not all of them are that good on gasoline, but many of them are a vast improvement over the gas-guzzling SUVs that have turned a trip to the gas station into a nightmare.

One general sales manager said recently that expensive gasoline has forced some folks into the automobile market. The fuel prices, he said, “stimulate people to get out of their SUVs ... They like their SUV, they like its size, but they would rather pay on a brand new car than on gas.”

Conservation of gasoline (and dollars) on a national basis could also reduce the demand for gas. And with that could come a reduction in prices the old-fashion way — by reducing demand. It would be nice to see the OPEC countries drown in the magnificent supplies of oil they are sitting on and producing in measured quantities at prices that are filling their treasuries with petrodollars.

For many, nonetheless, the rising gasoline prices have forced changes in the vehicles they drive and their driving habits. They are consolidating more shopping trips and they are thinking twice about weekend travels or even that vacation this summer.

Let’s hope the oil executives are right about the falling oil prices. And even if they do fall, folks should continue with the conservation practices they have been pushed toward in the past year. Oil is still a finite source of energy.