Oil’s slide stirs debate over cause
The escalating military conflict between Russia and Georgia and damage to a strategic pipeline in Turkey weren’t enough to stop crude oil from continuing its downward slide Monday.
The drop reignited speculation that rocketing oil prices earlier this summer had more to do with speculative trading than with supply issues.
“It speaks volumes about how this market was hijacked by investors who pushed the market up -- and now they are pushing it down,” said Peter Beutel, president of Cameron Hanover Inc., an energy risk management firm.
Others chalked up the drop to a stronger dollar and diminished demand from China.
The Chinese government reported that oil imports to the fast-growing country had fallen 7% in July to a seven-month low. The decline could reflect a mandated cut in manufacturing leading up to the Olympics.
Beutel, however, pointed out that oil prices would typically rise on the news that the Russian military was advancing deeper into Georgia. That puts at risk a pipeline that carries more than 900,000 barrels a day of light crude to world oil markets. The pipeline carries oil from Azerbaijan through Georgia and Turkey to the Mediterranean for shipment.
A recent explosion in Turkey has already stopped oil exports through that pipeline, forcing oil companies in Azerbaijan to cut oil production by 500,000 barrels a day. Exports are expected to resume through the pipeline in a week or so.
Others also were bracing for oil to rise.
“I expected we’d have a bit of a reaction today,” said Rick Mueller, director of petroleum markets at Wakefield, Mass.-based Energy Security Analysis Inc.
But Mueller rejected the notion that the earlier rise in oil prices was completely disconnected from supply and demand fundamentals. Instead, he said, today’s lower oil prices reflect the fact that “perceptions have changed” about demand.
“There’s an overall view in the market right now that demand is really cratering,” he said.
Whatever the reason, oil declined 75 cents to $114.45 in New York trading, bringing its decline to more than $30 a barrel over the last five weeks.
Gasoline prices are continuing to fall in crude’s wake. The average price of gasoline nationally tumbled to $3.809 a gallon Monday, falling 7 cents in as many days, the U.S. Department of Energy said.
In California, the cost of self-serve regular averaged $4.118 a gallon, down 8.7 cents from last week but still $1.19 above the year-earlier price.
Already, the recent drop in pump prices is drawing consumers’ attention away from their “single-minded focus” on smaller fuel-efficient vehicles, auto data tracker Edmunds.com reported today.
“Consideration data,” which tracks interest in various vehicle segments by visitors to Edmunds’ website, indicates that the trend toward smaller vehicles is leveling off while interest in segments that had been declining -- such as compact crossover sport utility vehicles -- is rising, Edmunds reported. Interest in gas-electric hybrids is down 34% since June.
“With the initial shock of high gas prices fading, consumers are returning to rationality and again viewing gas consumption as just one of many factors when considering their next vehicle,” said Jeremy Anwyl, chief executive of Edmunds.com. “And as gas prices actually decline, this trend could accelerate.”
Dealers in Southern California aren’t seeing a change in their showrooms yet.
“I think people are still in sticker shock,” said Beau Boeckmann, vice president of Galpin Motors in North Hills, the world’s largest-volume Ford dealership. “If it was three bucks a gallon, I think people would change their buying habits.”
It might take even more than that, said David Conant, owner of the Norm Reeves Honda dealerships. Past scenarios that saw Americans flock back to gas guzzlers when pump prices retreated may not be repeated this time around, he said.
“I think the shift in buyer attitudes we’ve seen this time because of gas prices is the most dramatic in all the time I’ve been in the business,” said Conant, who has worked for auto dealerships for more than 40 years. “This one has made a permanent mark on people’s memories.”
The Rocky Mountain Institute, a nonprofit group that promotes efficient use of natural resources, was concerned enough to issue a statement today “highlighting the importance of keeping our eye on the ball during this brief reprieve from higher oil prices.” The group urged that development of alternatives to traditional internal combustion engines -- such as plug-in hybrids and electric cars -- continue apace.