What's Behind (and Ahead for) Oil

[Bruce Nunnally]

Time.com: What's Behind (and Ahead for) the Plunging Price of Oil

It doesn't feel like it, but we got a raise this week. The plunging price of oil, which prompted OPEC to announce a 1.5 million barrel a day production cut, has put money in the pockets of recession-worried consumers. "It follows that there's going to be some spending effect," said Francisco Blach head of commodities research at Merrill Lynch in London.

Oil demand in the U.S. has dropped 10% in the few weeks, continuing a year long trend. According to the U.S. Department of Transportation, Americans drove 15 billion fewer miles in August, or 5.6% less than they did the year before. DOT says it's the largest ever year-to-year decline recorded in a single month. Over the past 10 months, Americans have driven 78 billion fewer miles than they did in the same 10 months the previous year — sure proof of what economists call "demand destruction."

MSNBC: Oil drops to $64 despite OPEC output cut

Crude prices have now fallen 56 percent from the highs reached in July, and more than $41 per barrel in just the last 30 days.

Iran and Venezuela pushed for a cut of 2 million barrels a day, but there were concerns among other OPEC members that a more severe production cut would exacerbate a deteriorating economic crisis and further destroy demand.

OPEC officials, however, signaled they were prepared to slice deeper quickly if crude continues its freefall.

Light, sweet crude for December delivery fell $3.69 to settle at $64.15 a barrel on the New York Mercantile Exchange. Prices had fallen as low as $62.85 earlier in the day.

Supporting that view was a report released Friday by the U.S. Department of Transportation that showed the largest monthly decline in miles driven in 66 years.

Americans drove 5.6 percent less, or 15 billion fewer miles, in August 2008 compared with August 2007 — the biggest single monthly decline since the data was first collected regularly in 1942.