Oil Prices Reach $135 A Barrel
The quotes below from two news stories on rising oil prices help to give some context to the crisis the U.S. faces in the coming months. I draw two conclusions from these articles:
- Oil prices are not coming down. There are economist and politicians trying to make the point that oil will one day return to $40 or $50 a barrel, but their voices are slowly being shut out by the reality of the world market.
- We can point our fingers at the oil companies, but oil companies do not control the supply of oil. This is controlled by oil producing countries, many of whom are not friendly to the U.S. (e.g. Russia, Iran, Venezuela).
MSNBC -- May 22, 2008 [Source Link]
As dire forecasts about runaway oil prices become reality, it’s impossible to know how much higher they’ll go. But the impact of the price surge already is being widely felt. And if prices go much higher, the damage to the U.S. economy will be deeper and wider than the fallout from the run-up so far.
Oil prices have doubled in the past year and have shot up nearly 50 percent since January to a record $135 a barrel. Much of the rise appears to be driven by speculators betting that tight supplies — or outright shortages — will push prices even higher.
Consumers — already hit with rising prices and flat wages — are being stretched further. As the Memorial Day weekend kicks off the summer driving season, gasoline prices are at record levels, reaching a national average above $3.83 a gallon. Some analysts predict the average will break past $4 as early as next week. In some parts of the country, prices are already closing in on $5.
“We're already in a mild recession,” said Lakshman Achuthan, an economist at the Economic Cycle Research Institute. “I think if we go towards $150 (a barrel), we start talking about something worse than a mild recession.”
FinancialSense.com -- May 20, 2008 [Source Link]
The oil price is around $128 a barrel. As recently as last year we were being told that the price would probably not make it over $100. Now we are being told there’s plenty of oil, so the oil price should drop to $100 or lower. These platitudes are sounding pretty empty as we are told that O.P.E.C. is not supplying any more than they are at present. And still the oil price goes up. What is not clear is the long-term effects of an oil price forecast to move as high as $200 a barrel. This will be a major crisis in itself.
Who is Benefiting from High Oil Prices?
Indeed O.P.E.C. is presently happy with the market situation; for there are many moves that oil users can make to reduce the cost of fuel and oil should they wish to do so. They can halt speculation in oil, which would return a great volume of oil to the market for consumption, which would lower oil prices, but it would also mean to go against the Free Market principles that shape the entire developed world.
