Sunday, June 03, 2012

Crude Oil, Gas Prices Decline as Global Production Increases

As I'm sure everyone has noticed, the price of crude oil has been dropping like a stone: almost $20 in the past month - sending national gasoline prices down to $3.59 on average. Gas prices have gone down near 30 cents in my area, which has definitely brought some relief to my wallet.

But why has the price of crude oil, and thus gasoline prices, been decreasing by such a margin?

Well, I'm no expert on domestic gas policy by any means, but the average American driver has been using less gasoline over the past couple of months to conserve what remains in their paycheck every week, sending down demand. However, the three main reasons for our breather at the pump are due to key foreign exporters:

1. Oil production has reached pre-war levels of 1.6 million barrels per day in Libya, which has primarily aided Europe's sluggish oil supplies, and BP announced that they will be resuming operations in the nation as its now safe enough for their employees to be on the ground.

2. Iraq's post-Saddam oil production has reached historic levels: 2.5 million barrels per day, with another four hundred thousand expected to be added by next year and some estimate that number could reach as much as six million by early next decade.

3. International sanctions on Iranian oil exports will be kicking in next month, but due to increasing exports by Iraq, Libya, Saudi Arabia and the United States, coupled with the global economic situation still weak, has led to the realization that we can weather less Iranian exports, and perhaps in the future, replace them entirely.

Regardless, this recent decrease in crude oil should indicate to hesitant individuals within our government, namely the President, that increased domestic oil production will not only shield ourselves from Iran's grip but will also lead to a growing supply, which will be large enough to prevent shortages when demand goes up as our economy improves.

What say you?

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