The oil market looks so weak due to the global recession that we may all enjoy even lower gasoline prices when we head to holiday parties during the next couple of weeks. OPEC, the oil cartel that includes Saudi Arabia and other major oil producers, agreed on Wednesday to sharply cut its oil production in the hope of shoring up prices.
But oil prices on the futures market responded almost immediately by tanking on Wednesday afternoon. This suggests that when it comes to oil/gasoline demand, the ailing economy is a huge wound in the oil market that an OPEC band-aid cannot fix--at least not right now.
U.S. oil supply remains well above demand, and that doesn't seem likely to change much as long as the world economy founders and people like you and I consume less gasoline and turn our thermostats down.
Inventories of crude oil are so high that this is posing a particular challenge to oil producers. When oil stocks overflow, oil marketers can tap their excess stocks to meet demand, and a decline in OPEC oil production has little effect on the market. In this case, even if demand rises, prices won't necessarily follow—at least not right away. So, enjoy this gasoline holiday because it looks like it may be here for a while.
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