Thursday, June 12, 2008

Fuel for the Gas Fire

What has driven oil prices through the roof? Well, lately, the sexy explanation has been "speculators."

BP chief executive Tony Hayward says that that theory is "a myth." He chalks it up to good ol' supply/demand economics.

Remember the mid-1990s?

The rise in oil prices has been remarkable. In 1997 the average price of a
barrel of Brent crude was $12.72. In 2007 it was $72.39. And earlier this month
it touched $137.

Can supply/demand really explain this price explosion? The story linked above says so.

The tight balance between supply and demand creates an environment in which even
minor news stories about disruption to oil fields can cause sudden leaps in
market prices.

More and more people in China and India are consuming oil like Americans have for a long time. LOTS and LOTS of folks live in those countries. Hence, it creates huge demand and it appears the supply/demand gap is very narrow right now.

So, oil up your bicycle chain...but, even that costs more than it used to.

1 comment:

Jeff said...

Let's just be glad fuel prices have not risen at the same proportional rate as the price of oil per barrel. If Oil was only $12.72 in 1997 and I seem to remember gas maybe being $1.15/gallon then, if it fuel prices were to rise proportionally to oil prices, with oil at $137 then a price per gallon should be around $12.38/gallon! We were being gouged in 1997 it would appear! Price of oil/barrel has gone up 10X what it was in 1997, yet the price per gallon has only gone up about 3.5X times what it was in 1997.