With crude prices hitting new highs every week, and OPEC indicating further increases, the reasons for are under debate.
Supply and Demand
According to the peak oil theory, the surge in oil prices can be traced back to a fall in oil production. It says that the continuously rising consumption levels create a strain on the existing oil reserves, thereby broadening the global demand-supply gap.
- “In reality, global production has risen every year since 2002, and is still growing,” says Absolute Return Partners LLP, a London-based investment advisory firm newsletter for June 2008.
- The U.S. Energy Information Administration’s weekly report Wednesday said inventories rose by 800,000 barrels to 301.8 million barrels last week.
- In the last month, gasoline demand fell by 2.1 percent compared to the same period last year, according to the Energy Information Administration, the Energy Department’s statistical arm.
Hedge funds, investment banks, mutual funds, and other financial institutions are magnifying small movements in prices—first as prices moved up last year, and now as they move back down. The explosion in the number of financial players in the energy markets has occurred particularly in the past year or two. There are currently 530 energy hedge funds, up from just 180 in October, 2004. Of the total funds now, 177 are strictly energy commodity funds trading oil or oil futures and options, as opposed to the stocks of energy companies such as ExxonMobil (XOM) and Chevron (CVX). Larger financial institutions such as Goldman Sachs (GS) and Morgan Stanley (MS) have also stepped up their participation in the energy markets recently.
A Weak Dollar
Another major factor is that oil is priced, globally, in dollars. As long as the dollar is weak, that will contribute to higher prices. Commodity prices have significantly pushed up inflation in most global economies and many central banks have resorted to a number of fiscal and monetary measures to counter this, with no success.
The Threat of War
The recent ‘rumors of war’ regarding bombing Iran has allowed the big brokers/traders to push the prices on the exchange up due to this panic speculation. Ron Paul addresses this issue in the following video where he also exposes the lies associated with the criminal push to implement a 2nd illegal war on a sovereign nation that poses us no risk.