Oil's Not Well

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If you've been waiting for gas prices to settle down, as many experts expected they would after Labor Day weekend, you might want to stop waiting. Our friends at the Organization of the Petroleum Exporting Countries (a.k.a. OPEC) have just agreed to decrease their oil output by 3.5%. And you know what generally happens to prices when supply shrinks, right? Right.

In fact, the price of a barrel of crude oil pretty much immediately shot up, rising by a full 4% to $28.24. The decrease of nearly a million barrels will put OPEC's daily output at 24.5 million barrels, about a third of the planet's total oil usage.

According to TheNew York Times, OPEC members cited the following reasons for the move: "the still-sluggish global economy, including a 'jobless recovery' in the United States, and rising production at non-OPEC countries." But others speculate that politics is another major factor. Some OPEC members might have been chafing at the United States sending an Iraqi delegation to the meeting, while others simply don't like the U.S. urging them to increase production to keep prices in check. Iraq, for its part, is busy increasing its oil output significantly, which could pressure prices downward, if OPEC members don't stick to their plans.

Meanwhile, the jump in oil prices will hurt more than just those of us who fill auto gas tanks regularly. It's also likely to mean higher heating bills in the winter, for starters. Many companies will also be pinched, such as chemical firms, which use a lot of oil as both a raw material and also as a fuel. The oil news was likely behind price drops in the stock of DuPont (NYSE: DD), Dow Chemical (NYSE: DOW), Rohm & Haas (NYSE: ROH), Ecolab (NYSE: ECL), and PPG Industries (NYSE: PPG).

The chemical industry has already been struggling, so this isn't welcome news. DuPont, for example, recently warned of lower-than-expected earnings in the second half of its fiscal year, while Rohm & Haas reported flat demand.

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