The price on a barrel of light, sweet crude fell as low as $35.13 just before the Christmas holiday as stockpiles of unused gasoline continued to grow.  It’s hard to imagine that less than a year ago the United States witnessed a record-high $4.11 per gallon at the pump; a time when several economists predicted that the national average would never again dip below $2.00 per gallon. 

During the summer months, Americans couldn’t listen to the radio, watch television, or shop online without being offered free gasoline in conjunction with other products and services.  As prices climbed, even retailers of fine jewelry and fashionable apparel were offering free gas cards with purchases.  Even more difficult to comprehend is that the topic of rising gasoline prices was a key issue with Presidential candidates John McCain and Barack Obama; an issue now almost completely abandoned in lieu of the more pressing economic recession. 

Now here’s a question: with gas prices lower, and demand decreasing, shouldn’t Americans be happy that gasoline not only costs less, but that less is being consumed?  In short, the answer is no, not right now.  The U.S. is struggling in a recession, and a collapse of any prominent industry doesn’t bode well for the economy.  The United States uses fossil fuels for 85% of its energy, and the industry’s success depends on maintaining high demand.  In recent months consumer travel has diminished, and factories with machinery have cut production due to decreased consumer spending.  These two factors have caused demand for oil to shrink to levels not seen in a decade. 
 
Small companies that manufacture heating oil, distribute gasoline, or refine crude oil have been hit particularly hard by the volatility in oil prices this year.  These companies bought oil earlier in 2008 at record-high prices, and are now being forced to sell their products at prices lower than their initial cost.  These smaller companies don’t have the assets to withstand the current buyer’s market, and it’s likely that many will go under because of the drastic reversal in the cost of oil. 

With all the bailouts of various industries, some people might be asking if the oil industry will be seeking a bailout in the near future.  The answer is, not likely.  While President-elect Barack Obama campaigned for significant changes to the energy industry, he recognizes that under the current economic circumstances, it could be a while before significantly changing the United States energy policy is viable.  Obama has expressed his openness for more drilling in combination with an energy plan that shifts U.S. dependency away from fossil fuels.  For the moment, the American oil industry might suffer a few setbacks by losing tax breaks, but might also be allowed to drill in more areas of the country; a kind of lose-win situation supporting the idea that the President-elect is at least willing to compromise. 

Obama’s recent cabinet picks in the Energy and Environmental sectors have even elicited praise from the American Petroleum Institute.  The API issued a statement saying:

We look forward to working with President-elect Barack Obama’s appointees to develop a comprehensive, fact-based and realistic energy policy.

However, some oil industry officials were not so gracious.  Carol Browner, Obama’s pick for the head of a newly created office overseeing energy and climate issues, imposed costly clean air restrictions and regulations on the refining industry during her stint as President Clinton’s head of the Environmental Protection Agency.  Browner is regarded as a powerful administrator, and the oil industry is concerned that her environmental policy could have an adverse effect on their revenues.  In addition, the oil industry as a whole remains anxious because of all Obama’s appointed officials, none are representatives from the fossil fuels industry; a stark contrast from President Bush.

Around the world oil producers have expressed worries for their industry’s well-being.  In a recent move to combat plummeting oil prices, the Organization of Petroleum Exporting Countries (OPEC), announced that it would slash production of oil by 2.2 million barrels per day.  This marked the largest cut in production OPEC has ever made, but the attempt to regulate prices was largely brushed off by oil traders.  Though OPEC is responsible for about 40% of the global oil supply, because consumer demand continues to drop, the effects of slashing production will have little result until a balance between supply and demand is achieved.  OPEC has stated that it may meet again in January to discuss additional production cuts. 

Overall the situation with the oil industry is tenuous; it’s an industry that was harshly criticized for price gouging earlier in the year, and has now been pushed to the side in favor of more pertinent issues as its revenues begin to wither.  There are some predictions of an inevitable return to $4.00 per gallon gasoline, but with Obama in the driver’s seat, it seems that the oil industry might need to strive a bit harder to remain a passenger once the economic downturn is over.

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