Thursday, September 14, 2006

Fuel Prices Poised to Drop Sharply

According to the Seattle Times, crude oil prices could be poised for a drop that could send US gasoline prices to $1.15 per gallon. You see, oil prices aren't really based on supply and demand the same way other goods are. The futures market for oil ensures that pricing will take into account future potential supply and demand. Investors have been speculating for the last couple years that with unrest in various oily spots of the globe, there could be a major oil disruption. Companies that rely on oil have responded by stockpiling.

But... the disruption has yet to materialize and some of those hot spots are beginning to cool. And people are sitting on a ton of oil that is priced way higher than actual supply and demand for the physical good should dictate. Bloop. That's the sound of an oil bubble popping.

SUV owners stand to benefit from this (excepting, of course, SUV owners who are sitting on major stockpiles of oil purchased at $60 per barrel), clearly, but this sounds like it could also be a boon for the world's airlines, which have been struggling of late. Maybe the Northwest flight attentands won't have to strike after all.