Sunday, April 17, 2011

Something Must Be Making the Price of Oil Go Up

Coyote Blog has a long post on speculation and the rising oil price. It's worth a read since it covers a lot of basic economics. In the comments, someone notes that "Well, something has caused gas prices to go up precipitously in the last two months."

My response is to look at the price of oil.

The world price of oil has gone up for several reasons. Libya produced 2% (about 1.6 million bpd) until the revolution. Last I saw it was below 700K. The Saudi's said they would make up the difference but I don't know if that has really happened.

Egypt is a very minor producer but a lot of Europe's oil goes through the Suez canal. The potential for supply disruption has sent prices up in Europe.

BP's blowout in the gulf added to the uncertainty of supply. The administration's moratorium and continuing delays in permitting new drilling off shore exacerbates this.

Further unrest in oil producing countries doesn't help either.

On the demand side, China and India are growing again and increasing their demand for all commodities including oil.
Given all that is going on, it would be very strange indeed if we didn't see an increase in the price of oil.

It's not one thing, it's lots of things.

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