Oil prices are increasing and gas prices are approaching levels not seen since the summer of 2008. In spite of a large volume of gas and oil reserves in the U.S., speculators have managed to drive up the price of oil 21 percent this year. But reality will intrude on the markets, analysts say, when gas becomes too expensive for U.S. customers to afford.
Oil rally carries on, for now
In early trading Friday light, sweet crude for May delivery rose to $111.90 a barrel on the New York Mercantile Exchange, the highest level since September 2008. The highest level since 2008’s summer was also reached in United States gas costs which averaged $3.70 this week. The oil price surge was due to many factors. A looming government shutdown is weakening the dollar, which makes dollar-based commodities such as crude oil more affordable for traders betting with other currencies. It doesn’t seem like the Libya conflict is about to end. The country has already stopped producing most of its oil. The U.S. is awash in oil considering customers are spending increasingly more buying gas every single day. The United States Energy Information Administration explained that there was an increase in oil inventories in the United States in the week that ended April 1. There was a 2 million barrel increase. There was an increase in over 14 million barrels a day in t! he crud refinery.
Speculators suspend law of supply and demand
The United States used to blame OPEC for its oil shocks, but OPEC’s role in increased oil costs has been reduced. There was an oil conference in Paris where the United Arab Emirates oil minister spoke. He said that costs have hardly any change any longer because of OPEC. Mohammed bin Dhaen al-Hamli said that OPEC is providing the industry with the oil it needs. The only reason for oil costs rising is due to traders. They’re betting on a worst case scenario instead of paying attention to the facts. The Federal Reserve is simply helping oil speculators which help pension funds and hedge funds bet on commodity costs with zero interest rates. Analysts estimate that due to speculators, oil futures are $15 to $20 increased than they should be. Prices might be driven up even further with violence in Nigeria along with the elections this weekend. The country produces 2.2 million barrels a day.
How much longer until an oil tipping point
United States consumers may not be willing to pay much more for the oil and gas coming out. In just the last four weeks, there has been a 3.7 percent drop in gas demand. Some analysts are saying that oil costs will reach a tipping point soon, unless another crisis in the Middle East or a Nigerian meltdown play into the hands of oil speculators. The second Fed quantitative easing plan (QE2) failed. Before, oil was around $90 a barrel to buy. As rising costs continue to constrain customer demand, when quantitative easing ends in June and the free money spigot is turned off, oil and gas speculators could reduce their position by as much as a third, stabilizing crude oil prices at between $85-$95 a barrel.
Information from
Wall Street Journal
online.wsj.com/article/BT-CO-20110408-707562.html
New York Times
nytimes.com/2011/04/09/business/09markets.html?partner=rss&emc=rss
Industrial Fuels and Power
ifandp.com/article/0010617.html
Fortune
finance.fortune.cnn.com/2011/04/08/oil-at-the-tipping-point/
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