Cheaper Petrol And Gas In 2009!

Perhaps oil prices will bounce back up, but it'll be impossible for exporters to maintain higher oil prices when we want to buy less. That could mean lower energy prices for all of us next year.

Everything is connected to everything else, Einstein once said. (I believe Karl Marx also said this, which is unfortunate. Colleague David Kuo* and several readers have called me a communist once or twice two often in recent years. Bah!)

That's why there's always some good news to find amongst the bad. Not only are our bank balances (and our banks) affected by the financial crisis, but so also are oil prices. As you'll have no doubt read, oil prices have tumbled dramatically over the past few months from a high around $150 a barrel to $70 per barrel. Extraordinary.

A bounce for oil prices?

Prices might bounce back up, particularly with the Organisation of the Petroleum Exporting Countries (OPEC) looking to reduce the number of barrels of oil it produces. As there will be less oil to buy, the price should receive a boost.

Furthermore, our Government and perhaps some others seem to want to borrow yet more money to spend on boosting our economies. This might cause the oil price to rise too, temporarily, because with more money in the economy we'll have more to spend on oil. We've seen this happen in very recent history. Just last September, when the US announced a huge financial bailout, oil prices rose by a record $16 in one day to around $125.

Would an oil-price bounce last?

However, since that one-day in September, oil prices have again fallen, as I said, to around $70. The effect of the US government's announcement was short-lived.

As for OPEC controlling prices, the thing is that some of these oil-producing countries need to sell lots of oil at high prices to balance their budgets. If they cut production too far they'll be selling at a higher price, but they won't be selling enough. I'd imagine that could cause divisions at next week's OPEC meeting.

With prices having fallen, some funds (called hedge funds) that have been buying oil in the belief that prices will rise and they can sell at a profit, have probably already sold. This will have impacted the oil price already. However, it's likely that yet more hedge funds will call it quits, too. As they sell more and more, this could further reduce the price of oil. The size of the effect depends on how much oil they have bought and how much they sell in the next months.

It's all because we're spending less

I'm no oil expert, so I can't predict what OPEC will do, nor can I guess how much oil hedge funds have bought, or how much they'll sell. However, this is not so important. The most important factor right now is that, for the next year or three, the world is going to buy less stuff.

I'm sure you're all aware that none of us have much spare money right now, so we consumers are already buying less petrol. What's more, we'll be buying less in the shops. This means shops will sell less stuff. If they sell less, then they'll buy fewer materials too, including petrol for transport. If both companies and people are buying less petrol, the price of oil will naturally come down.

So the oil price could stay closer to $70 rather than $150 over the next couple of years.

What could that mean for us?

In the next few weeks we should see petrol come down further in price, led by the supermarkets.

Gas prices are linked to the price of oil. This link is increasingly less relevant, so it's likely that gas exporters will want to disconnect it further if oil prices keep falling as we expect. In the meantime though, we should see falls filter through to our utility bills in around six months. Not in time for winter, but a reduction nevertheless. Hooray!

Sadly, electricity always lags several months even further behind. What's more, we still haven't had an increase as a result of the high oil prices earlier this year. Therefore we could well see electricity prices rise before we see them fall again.

What do I think of capped energy tariffs now?

I've voiced my scepticism about capped tariffs several times this year. The initial, higher price that you pay might easily offset any gains you make in the future if oil prices rise. I'd certainly say that right now you should think even harder before getting a capped tariff. 

These are just for people who not only can afford the higher initial cost, but also need the certainty that the price won't rise higher. Most people would be better off getting the cheapest variable tariff they can find.

*Compared to David, everyone is a communist.

> Develop the revolution, improve production and labour, get ready for war, and do every aspect of work well. If that doesn't suit you comrade, compare gas and electricity prices, and switch.

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