Why does the oil price continue to go down?

Well, that is an interesting question I think – and it shares some of the reasons why the Detroit auto makers are now desperately looking for a bailout from the US government similar to the banking ones.

For a long time, OPEC countries though to be the masters of the moving universe. These highly power-concentrated countries have names which resound like a big mantra for some and a big curse for the others – Venezuela, Saudi Arabia, Iran etc. They base all of their fortunes on oil supply and the founding of OPEC was done to control the oil supply and to make them richer.

Unfortunately for them the world economy is a pretty free one (definitely freer than in the 19^th century when the Arabic countries controlled the spices transit to the European world and made other fortunes from that). So when the recession comes, people spend less on traveling, cars or plastic bags – all driven by fuel consumption. Therefore, despite OPEC’s desperate attempts to limit the fuel supply, analysts still think that the drop will be much higher.

Add to this the improved US reserves estimations and the fact that the recent hurricanes spared the refineries and you will easily understand why some analysts point to an even lower oil price – maybe as low as $50 per barrel.

This imbalance will actually benefit the world economy and OPEC’s members investments done in the developed world through their sovereign funds. As the oil prices decrease, everything becomes cheaper, encouraging people to buy and re-launching the economic cycle. This is not an unfounded hope – unless some smart scientist finds a solution to our oil addiction in the modern society