Friday, June 6, 2008

Oil price rises by $10.75 in one day

CNN reports that the price of light sweet crude oil closed today at $138.54 per barrel on the New York Mercantile Exchange, up from yesterday's closing price of $127.79. This marks new records in both the closing price of oil, and one-day growth in oil prices.

The highest price oil reached today was $139.12 per barrel, shattering the old intra-day record of $135.09, which, according to CNBC, was set on May 22.

So the question is, why? And, as it turns out, most of the blame can be placed on two factors:

1: Heightened tensions in the Middle East

Reuters reports that earlier today, Israeli Transport Minister Shaul Mofaz told a newspaper, "If Iran continues with its program for developing nuclear weapons, we will attack it." In fact, says the minister, conflict will be "unavoidable" if Iran does not stop its program. When questioned on this, even prime minister Ehud Olmert's spokesman said "all options must remain on the table" with respect to Iran (sound familiar?).

Any tensions in the Middle East tend to cause an increase in oil prices, and tensions involving Iran are certainly no exception. According to the Energy Information Association of the Federal government, Iran is second only to Saudi Arabia in both production and reserves of oil among Persian Gulf nations. In addition, the EIA says that nearly all of the oil exported from the Persian Gulf region, and about a fifth of the world's total oil supply, goes through the Strait of Hormuz, which Iran controls. In the event of an Israeli strike on Iran, which the United States would probably support, it's not hard to imagine a disaster in America's oil market.

2: Dire predictions

CNN Money reports that Morgan Stanley analyst Ole Slorer predicted today that oil would cost as much as $150 per barrel by July 4. Slorer said that this increase would mostly be due to the market readjusting to increased demand for oil from Asian countries.

Of course, leave it to oil traders to see a prediction suggesting amazing profit on their part as authorization to exploit the market. Do they really expect us to believe speculation and manipulation have nothing to do with the recent rise in oil prices?

Does anyone else still remember the good old days when $70 seemed high?


Rainier96 said...

Good analysis. Good old days -- two years ago. LOL And it went down to $50 after that spike to $72, if I remember right.

I'd guess the present $138/bbl is mainly speculation and it will drop some, once it appears clear that we have enough oil to meet needs for the coming year.

But the basic problem is that we have run out of easily extractable petroleum, and, while there's still a lot of old dinosaurs left down there waiting to be mined, what's left is getting harder and harder to pump out. We'd better figure out a new way to get energy, or change our lifestyles a lot more radically than even us environmentalists want to.

Rainier96 said...

Replace "us" with "we" in last sentence. :-)