Oil Prices Tumble in Biggest Weekly Drop Ever – Trend, or Blip?
The AP gets straight to the heart of this story: "As the price of oil drops dramatically, some analysts wonder if the bubble is bursting." When the markets closed on Friday, August oil futures had dropped from their recent high of $147/barrel to "only" $128.88. That still leaves oil about $100/barrel over it's long term inflation adjusted average of $27-$28. Detroit, especially Ford, appears to be moving full steam ahead to convert capacity from trucks to small cars as fast as possible, which means in about two years. So… what if fuel prices will drop back down, keep going up or stay about where they are now during that two-year timeframe? Whatever happens, it seems that $4/gallon has been a behavioral tipping point for the US' car and truck buyers. It took about a decade of stable fuel prices for people to forget the shocks of the 1970s. Once again it seems that even a slight moderation of prices would not mean a wholesale return to 1990s style gas-guzzlers. The only sensible strategy for a mainstream automaker: offer a compelling line-up across the board and flexible factories ready to zig when the market zags. But hey, what do I know?
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I have not seen a price drop at the pump yet. Even if it drops a dollar a gallon, it will just rise again. All the talk of getting out from under foreign oil is a step in the right direction. That should remain the focus. That should continue to be a national priority.
The better the automakers average fuel economy, the greater the reduction in demand for oil, the lower the price for it- simple.