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Oil prices will surely head back up

October 29, 2008
The Daily Mining Gazette

What goes down probably has to go back up. That thought probably is in the minds of many motorists enjoying a brief respite from sky-high gasoline and heating oil prices.

OPEC leaders agreed last week to reduce oil production by 1.5 million barrels a day. At first, some analysts gloated that the cartel's action was not having an effect on oil prices. Indeed, oil prices continued to drop, reaching levels about half those of just a few months ago. That will translate to lower prices at the pump - for now.

But oil is a commodity, with the price to consumers linked closely to the law of supply and demand. OPEC's action eventually will have an effect, probably sending prices back up. If the production cut agreed to last week doesn't have effect desired by OPEC, it may reduce output even more.

At some point, speculators once more will enter into the picture, possibly driving prices even higher.

Where will it all stop? If history is any guide, gasoline prices during the next year or so probably will not reach back up to the $4-a-gallon level seen earlier this year. But they will top prices paid just a few years ago. OPEC, in other words, will win another victory.

And the OPEC leaders probably will share a chuckle at the short-sightedness of Americans - who never seem to learn.

OPEC will continue winning the energy war until and unless Americans agree on a sensible, practical energy policy. That means more development of domestic oil and gas supplies - and development of alternatives such as coal-to-liquid fuels. Unless that happens, there will come a time when $4-a-gallon gasoline is, believe it or not, just a fond memory for American motorists.



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