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Summary: Why Oil Prices Are At Record High

Discussion in 'Band of Glockers' started by antediluvianist, May 23, 2008.


    FACTBOX: Why oil prices are at a record high

    Wed May 21, 2008 9:41am EDT

    (Reuters) - U.S. crude oil hit an all-time high of $130.47 a barrel.

    Robust demand for crude and a weak dollar have fuelled the rally from a dip below $50 at the start of 2007.

    Adjusted for inflation, oil is now above the $101.70 peak hit in April 1980, according to the International Energy Agency, a year after the Iranian revolution.


    The fall in the value of the dollar against other major currencies has helped drive buying across commodities as investors view dollar assets as relatively cheap.

    It has also reduced the purchasing power of OPEC's revenues and increased the purchasing power of some non-dollar consumers.

    OPEC oil ministers have noted that although prices are rising to record nominal levels, inflation and the dollar have softened the impact.

    Some analysts say investors have been using oil as a hedge against the weaker dollar.


    Since the Federal Reserve cut U.S. interest rates in mid-August last year and central banks pumped billions of dollars into financial markets to ease a credit crunch, oil and gold have risen.

    Investment flows from pension and hedge funds into commodities including oil have boomed, as has speculative trading. At the same time, the credit crunch has brought some other markets, such as the U.S. asset-backed commercial paper market, to a virtual standstill.

    Some of that money has found its way into energy and commodities, analysts say.


    While previous price spikes have been triggered by supply disruptions, demand from top consumers the United States and China is a main driver of the current rally.

    Global demand growth has slowed after a surge in 2004 but is still rising and higher prices have so far had a limited effect on economic growth.

    Analysts say the world is coping with high nominal prices because, adjusted for exchange rates and inflation, they have been until recently lower than during previous price spikes and some economies have become less energy intensive.


    The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, started to reduce oil output in late 2006 to stem a fall in prices.

    Fewer OPEC barrels entering the market helped propel the rally and consumer nations led by the International Energy Agency have urged OPEC to pump more oil.

    At its meetings since December, OPEC has agreed to leave output unchanged, saying there is enough crude in the market. It next meets formally on September 9.

    Few in the group believe there is much it can do to tame a market it says defies logic.


    Supply of crude from Nigeria, the world's eighth-largest oil exporter, has been cut since February 2006 because of militant attacks on the country's oil industry.

    Oil companies and trading sources have detailed 559,000 bpd of shut Nigerian production due to militant attacks and sabotage.


    Oil consumers are concerned about supply disruption from Iran, the world's fourth-biggest exporter, which is locked in a dispute with the West over its nuclear program.

    Western governments suspect Iran is using its civilian nuclear program as a cover to develop nuclear weapons. Iran denies this, saying it wants nuclear power to make electricity.


    Iraq is struggling to get its oil industry back on its feet after decades of wars, sanctions and underinvestment.

    Exports of Kirkuk crude from the country's north are stabilizing as the system recovers from technical problems that had mostly idled the pipeline since the U.S.-led invasion of Iraq in March 2003.


    Refiners in the United States, the world's top gas guzzler, struggled with unexpected outages which have drained inventories.
  2. brawnless

    brawnless Junior Member

    Dec 5, 2004
    excellent info. :)

    investment choices look bleak as inflation is headed up.

    expecting diesel to raise to as much as php 50 this year. a double whammy as the exchange rate weakens too.

  3. When I started to drive in 1986, gasoline I remember was at 13-14 pesos

    Now its at 51+

    I wonder how much it would be 22 years hence?

    450 pesos? :(
  4. bulm540


    Jun 18, 2004
    Hopefully we wil have alternative fuels like ETHANOL derived from sugarcane by then and reduce our dependence from foreign oil. If Brazil can do it, there is no reason why we can't.
  5. maskytrading


    Dec 20, 2006
    It's time for the water powered engine!? :upeyes:
  6. dinggaling

    dinggaling APO Traveler

    Jul 4, 2004
    Rainbow Clubhouse
    the good side about all of these "greed" that oil producing countries are ramming down our throats is that people/consumers are driven to explore and invent things to alleviate this plight. hopefully time will come that this very expensive commodity will just be one of those alternative fuels that we can use. :rant: