No, I'm not talking about the stock market. I'm talking about crude oil and gasoline.
Back when oil prices were still well over $100 per barrel, I wrote in Forbes magazine that they were likely to fall. I thought the global slowdown and the rapid change in driving habits would bring oil down to about $70. Of course, we've already fallen well below that mark. Crude is now selling for less than $50. Gasoline prices have also plunged. According to the AAA Fuel Gauge Report, the national average retail price for regular unleaded gasoline is currently $1.93 per gallon.
It would be nice if prices were falling because the world had discovered a lot more oil. Unfortunately, prices are falling because demand is being destroyed. Much of the demand destruction is due to the global economic slowdown. In particular, people are driving less in the U.S. They are also driving more efficient cars. U.S. auto manufacturers are struggling in part because no one wants to buy a gas guzzler anymore. The Honda Civic is suddenly chic.
Other countries are being impacted as well. Europe and much of Asia are in recession. Although demand is still growing in China, it is growing at lower-than-expected rates.
So how low can oil go? It all depends on the severity of the global recession. It also depends on how serious we remain about alternative energy. Plug-in hybrids and all-electric vehicles seemed to make economic sense when oil was at $140 per barrel and $5 gasoline was within sight. But how many drivers would be willing to give up their internal combustion engines if gasoline is expected to remain below $2 per gallon?
Not long ago, no one seriously thought we'd see $40 crude oil again. However, now it appears that we'll see $30 very soon.