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E C O N O M I C S
w i t h E D W A R D T R I M N E L L
January 2, 2008
How oil could take a big tumble
Despite today’s milestone of $100/barrel oil, the sky isn’t the limit for crude prices. Historically, oil has gone up and down. (Crude prices collapsed in the 1930s and the 1990s for example.) Here are some factors that could drive the price of oil back down to more sustainable levels.
Speculators have played a large role in the current run-up in crude prices. And speculative markets are prone to corrections and crashes. (Just look at real estate, for example.)
If the U.S. economy does slip into negative territory, this will mean less demand for imports from China, which will mean less demand for oil from Chinese industries. Result: cheaper oil.
Many analysts believe that $3.25/gallon is the threshold at which U.S. motorists will drastically reduce their consumption of gasoline.
Finally, don’t forget about science: hybrids, ethanol, renewable energy, and shale oil extraction will all lower demand for crude oil over the long haul, once again lowering prices.
