Don't dig the grave for oil just yet

The price of gasoline is plummeting so rapidly in the United States, that I'll confess to only filling up my tank halfway every few days. The two to five US cents that the price drops in three days is actually translating to a decent savings for me, so for now I'm betting - and accurately so far - that I'll save some cash because crude is in such a free fall.

Which, I have to point out is just as dangerous, and just as unfounded, as the wild upward price ride crude was on just a few short months ago.

Think about it. We've gone from more than $140 per barrel, to less than $50 this last week. Oil companies are beginning to complain that investors seem to be under the impression that there is a significantly lower bottom still to find, perhaps around the $30 mark.

I certainly hope they are wrong. What would be ideal is to get crude off of the insane rollercoaster that it has been on.

But even though the Organisation of Petroleum Exporting Counties (Opec) is trimming supplies by 3.8 per cent this month, it wasn't enough to bring up the price to the $50 per barrel mark. Keep in mind that even fiscally conservative Saudi Arabia needs oil to stick at or above $50 to balance their budget.

Undervalued crude is going to be just as dangerous as overvalued was.

To me, and a fair number of analysts, the $60 to $80 price range seems pretty reasonable.

It reflects the lowered demand thanks to a cooling world economy, and what is rapidly becoming a frigid US economy.

President-elect Barack Obama has been relatively blunt in his assessment of the US economy and where it is headed even with the current bailout plan. Already more than one million jobs have been lost there and that many may disappear in 2009 as well. Elsewhere in the world, leaders from Italy to Australia are saying that the financial crisis has hit everyone harder than expected. Even China's massive cash dump into its own stimulus program smacks a little of desperation.

Softening demand

That the US is considering a bailout of failing automakers is certainly another nail in the coffin.

But don't dig that grave just yet. Softening demand for crude doesn't mean nonexistent demand. And pressuring the price downward to the point where Opec feels that it has no choice but to significantly curtail production is only going to contribute to a significant price spike somewhere down the road.

Along with weak pricing, we're also going to see substantially less funding for alternative energy projects and reinvestment in aging, or nonexistent, oil production and processing infrastructure.

Once again, lack of funding for those projects is going to translate to inflated crude prices down the road. After all, if we don't have the needed refining capacity, it isn't going to matter how much Opec is pumping. Supply won't match with demand and back up to more than $100 per barrel we go.

Remember the boom, or bubble if you prefer? There was no way to support $140 crude oil. Everyone was talking about the fundamentals of the market - especially demand - were not what was driving the price up.

Well, that point hasn't gone away. But I still don't believe that the fundamentals justify $30 per barrel either.

And as much as I love a bargain at the pump, I'd rather pay a slightly higher price to fill up my vehicle now than pay the price of decreased production and processing down the road.

- The writer is a freelance journalist based in Alaska, US.