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When supply and demand were driving up oil prices after Hurricane Katrina, Congress summoned oil executives to Capitol Hill to chastise them. But don't expect Congress to congratulate them or thank them now that supply and demand are driving down oil prices.
The price of crude oil fell to $51.21 per barrel on Jan. 16, its lowest price in 19 months and 16 percent lower than at the end of last year. A combination of factors led to the sustained drop: Warmer than usual weather in early January brought down demand for home heating oil. OPEC members, meanwhile, did not abide by production limits, keeping supply levels higher than expected.
One result: Prices at the pump are also falling, dropping below $2 per gallon in many markets. This welcome news for American drivers is a big headache for oil-producing nations. Many of them-especially those that use oil wealth to spread their political influence-aren't taking the price decline standing still.
Officials in Venezuela and Nigeria have called on OPEC to cut production and bring prices back up. "This fall in prices is too much, very worrisome, and we're going to take all measures to resolve the situation," warned Venezuelan oil minister Rafael Ramirez. "If nobody wants your commodity," added his Nigerian counterpart, Edmund Daukoru, "it's better to leave it in the ground."
Rhetoric like that has given political momentum to calls for U.S. "energy independence," and President Bush reportedly planned to call for a big increase in mandated ethanol use by U.S. refiners in his Jan. 23 State of the Union address.
But another obstacle to the Ramirez/Daukoru strategy is other oil producers. Last week Saudi officials rejected calls for an emergency OPEC meeting to discuss production cuts. OPEC nations, according to Dow Jones, are fudging on their commitments to each other by producing 700,000 barrels a day beyond OPEC's target.
A long-planned OPEC production cut of 500,000 barrels per day is scheduled to take effect on Feb. 1, and it could slow or even halt the fall in prices. But only if OPEC members honor it.
CALIFORNIA: Cold weather devastated California's citrus crop last week, causing nearly $1 billion in damage. The result may be sharply higher prices at grocery stores for oranges, lemons, and other fruits. "We may adjust the prices as we discover the full extent of the damage next week," Todd Steel, owner of Royal Vista Marketing, told the Associated Press. "But for now, if you bought an orange at the supermarket for 50 cents, expect to pay a dollar to $1.49 for it."
CORN: Corn is also becoming more expensive, but the problem isn't the weather. It's foreign buyers and ethanol plants that have been loading up on corn, pushing prices up to between $3.00 and $3.40 per bushel, their highest level in a decade. Mexicans have been hit especially hard, with the Reuters news service reporting that the price for corn tortillas jumped 25 percent in one week this month. The price jump has created a political crisis for the new president of Mexico, Felipe Calderón.
ART: A survey of 180 art buyers and sellers published last week suggests that the market for high-priced paintings may be cooling. The ArtTactic Market Confidence Indicator grew just 1 percent in the six months ending in November; it had increased 26 percent in the 12 months prior to that. Contemporary art prices have reportedly tripled in the last decade.