Why Are Gas Prices Coming Down?
Friday, September 1, 2006 at 01:08PM Currently the national average for gasoline has fallen to $2.79 a gallon.
All the analysts predicted rising gas prices after the BP Alaska pipeline shutdown. Other factors sited in the predictions for rising prices was the tensions in Iran, Israel and Lebanon, and Nigeria.
If these were the reasons for pricing rising, what has happened in these locations to make prices fall?
Let's take a look:
Alaska
BP plans to begin constructing the new pipeline system early next year, and return to full production of 400,000 barrels a day. Production is cut in half to 200,000 barrels a day from the shutdown due to pipe corrosion. The western part of the pipeline system resumed production by bypassing the damaged pipes. So, there's still a loss of 200,000 barrels until sometime in 2007.
Iran
The news media has kept us all aware that Iran has refused to back down on its nuclear program, the deadline has passed, and proposed sanctions are on the way. Once the deadline date was reach, oil prices went UP, so how can this be factored into lower prices? What else is going on with Iranian oil?
Iran is threatening Japan over a project in Azadegan, which is one of the largest oil fields in the world. Japan signed an agreement in 2004, but pressure from the U.S. over the nuclear program has Japan in a bind.
Since Japan is on the hot seat, Iran is now threatening to turn the project over to Russia and China. Will Japan vote for sanctions against Iran? Russia and China have already voiced their opinion against sanctions. Oil makes for good political partners, and what about Iran's promise of oil increases if sanctioned?
Israel/Lebanon
Although the bombs have stopped dropping, we are all aware that the truce remains quite fragile. The oil spill resulting from the Israeli bombing of oil tanks in Lebanon has produced the most disastrous spill to affect the entire eastern Mediterranean basin, which includes Syria, Turkey, Cyprus, and Greece, as well as Lebanon. This is just a "wait and see what happens" situation.
Nigeria
The Nigerian oil workers union voted to strike on September 13, in response to the violence, kidnapping, and general lack of security. Union officials say the strike could last three days, but offers of higher pay could resolve the issue. Currently Nigeria's oil production is down by 25%, which is equated to 600,000 barrels per day. Shell, Chevron, and the Italian oil company ENI are the foreign companies in the Nigeria Delta.
In their message the unions warned that "if after the three-day warning strike the government fails to address the issues raised, and provide a peaceful and safe environment in the Niger Delta, and other parts of the country for oil workers in particular, the will have no other option but to withdraw their services indefinitely". The unions blame the government for not doing enough to combat the crisis in the region. Does this sound like things will be getting any better for increased oil production in the region?
Venezuela
Not factured into the drop in prices, but nevertheless a player in the game. On August 23, Venezuela announced it would triple its oil exports to China over the next three years. That announcement made China so happy it decided to build 18 tankers for Venezuela's oil fleet.
And there are rumors that China has privately said it support Venezuela’s bid for a seat on the United Nations Security Council. Russia and Iran also have lucrative oil contracts with Venezuela.
The writing was on the wall when Citgo announced selling more than 1,800 of the Venezuela/America Citco gas stations.
Although many U.S. government officials do not believe Venezuela will shut off oil to the U.S., I believe it's only a matter of time before more of Citgo’s American facilities are sold off.
While I'm happy to get some relief when filling up my tank, I'm not buying the reasons given for the down turn in gas prices. The world of global oil production is still very shaky, and American consumers are just pawns in the game.
While we may rejoice in lower prices at the pump this Labor Day weekend, we should not see this as a sign that prices will become stable, or even go lower.
Reader Comments (2)
We have enemies around the world, and we have to buy gas from some of these countries. Can you think of any country we purchase oil from that has issues with America, and our foreign policy?
This is the main factor why we should not be dependent on oil - but that is not the case.
Thanks for stopping by and posting.