Before I post the article, let me speak freely on this subject. I personally believe the law of supply and demand hasn't been in effect over the petroleum fat cats in sometime. The folks, CEOs if you will, have reached a level of greed that's undeniable. The fact that we're in a RECESSION and the supply is DOWN should solidify a cheaper price. And while Ill be the first to admit the prices are way down from last year, if the current trend continues, and it will, gas will be about $3.50 by the summer. I'm calling it now. Today is May 24, 2009. By July, 2009 gas will be at a National average of $3.50. We'll call this my Howard Beale Revelation, although it's mere memory that leads me to such a conclusion. Check out this link and scroll down to the summer months and watch how the price ALWAYS increases:
http://www.nyse.tv/crude-oil-price-history.htm
I'm not spouting conspiracy theories, those are the facts. Some say it's because they're blending the gas to make better mileage types for the summer travel, or that the old supply-demand formula was being implemented. The only evidence I can find for the price hikes is the "speculative" narrative from "insiders". Lot of sense that makes eh? Somebody's OPINION determines the rise and fall of crude oil? Say it aint so... ok I'm done ranting. Read the article.
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Found the following on the SF Gate. It's written by David R. Baker.
Recessions usually bring cheap oil and gasoline.
But not now. And that has analysts worried that another fuel-price spike could be on the way.
Crude oil, the lifeblood of the global economy, costs $61.67, even as the world struggles through the worst recession since World War II. And prices are rising, climbing 26 percent in the last month.
Gas prices have jumped as a result, rising 12 cents in California last week to reach an average of $2.62 for a gallon of regular.
Compared with last year's record oil price of $145.29 per barrel, for oil sold on the New York Mercantile Exchange, $61 may not sound like much. But it's twice the historic average for petroleum, which used to trade from $20 to $30. Prices briefly fell below $34 in December and February, but they've rebounded with a vengeance.
The economy hasn't. But oil traders are betting that the recession is at or near its worst, meaning a recovery could start later this year and drive up global demand for oil again. They're trading on the possibility of a recovery, rather than a recovery itself.
To many analysts, the current high price is a bad sign.
The worldwide oil market is awash in petroleum, because countries stuck in recession don't need as much to fuel their cars, factories and power plants. So if oil costs this much now, when demand is low and supplies are high, what happens when the economy improves?
Another record-setting price spike? Gasoline rising back above $4 a gallon?
"The fact it's going up now on nada is proof that speculators are still in control," said Judy Dugan, research director with the nonprofit group Consumer Watchdog. "Unless there are curbs in place, it obviously could shoot through the roof again."
Changing the rules
That fear is fueling efforts in Washington to change the rules of the oil market. A global warming bill wending its way through Congress includes provisions designed to limit the role of speculative oil investors, whom many politicians blame for last year's runaway bull market.
"We need to look no further than today's oil prices, which have doubled since December, to see the effect speculators have on energy prices," said Rep. Bart Stupak, D-Mich., who wrote those provisions. "We are in the middle of a recession, supply is at a 20-year-high, demand is at a 10-year low, yet oil prices are up 70 percent since the beginning of the year. This cannot be explained by simple supply and demand."
However, even if the legislation doesn't pass, another major price spike is hardly certain.
Due to the recession, the world has a glut of oil in storage, with supplies in the United States at their highest level in 19 years. An estimated 100 million barrels worldwide are sitting in tanker ships, which companies have been using as floating storage bins. As the price rises, more of that petroleum will pour onto the market.
"That's definitely going to be a headwind against the price of oil as it moves up," said Allen Good, an analyst with the Morningstar market research firm.
In addition, Saudi Arabia and the Organization of the Petroleum Exporting Countries may try to keep oil supplies high enough to prevent a price spike, said Amy Myers Jaffe, an energy research fellow at Rice University's Baker Institute. The worldwide recession cut demand for their oil, they want the recession to end and high prices could hinder a recovery.
'Speculative bubble'
"I liked $45 (per barrel), and I think the Saudis have the ability to bring it back down to there if they want to," Jaffe said. "To me, we're having a little speculative bubble right now, and it's going to fizzle out."
The last time oil rose above $60, in March 2007, America's economy was growing, China's was soaring, Chrysler was still solvent and few people outside the financial world had ever heard of mortgage-backed securities.
Back then, $60 was considered frighteningly high, a price capable of causing serious economic harm. The decade's rising oil prices were already having a clear effect on drivers, who were buying less gasoline. Gas sales in California have dropped for the last three years in a row.
Even after last summer's economic meltdown ended the bull market for oil and sent gas prices tumbling, drivers kept buying less. Americans used 2.7 percent less gasoline in the last four weeks than they did during the same period last year, according to the Energy Information Administration, part of the U.S. Department of Energy.
Such weak sales should be keeping oil prices low. But traders have been gambling that the recession has finally bottomed out, with a recovery perhaps starting later this year. That would increase worldwide demand for petroleum.
In addition, China's thirst for oil may be picking up again. After falling through the winter and spring, China's oil consumption rose about 4 percent in April compared with the same month of 2008, according to the Platts energy information service. China's increasing need for oil was one of the main reasons - some would say, excuses - for last year's price spike.
Some politicians argue that the country remains far too vulnerable to a repeat performance.
Limiting trades
The climate change bill includes provisions that would ban some types of oil trades and regulate others that don't take place on a formal market. Limits on the number of oil contracts a speculator can hold would be extended to cover those trades as well as trading on electronic exchanges and overseas markets.
"I think there's no question that supply-demand fundamentals are not reflected in the current (oil) price," said Tyson Slocum, director of the energy program at the Public Citizen watchdog group, which supports cracking down on oil-market speculation. "Is this a preview to $145 oil? I don't think so. But I think this underscores the need to increase oversight of these markets."
For a brief history on the price of petroleum check out this link. Many charts to show how historic events have shaped prices and the hypocrisy of recent memory.
http://www.wtrg.com/prices.htm
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