There are two major forces behind the recent rise in oil and gas prices – seasonal flux and production cutbacks.
Let’s forget, for a quick moment, that the world is in the worst recession in years – possible even a depression – and say things were “normal.” This would mean that demand, specifically in the U.S., would really start to pick up. As a result, traders and producers would start to bid up the price of oil ahead of the expected increase in demand. The problem, however; is that we are not in normal times and travel and oil consumption in the United States is off anywhere from 10% to 30% (depending on the sources you read).
Well, even though the price of oil should be heading down – and even though the world faces horrid economic times – Saudi Arabia says the world can cope with the price.
Saudi Oil Minister Ali al-Naimi, speaking on the eve of a meeting of the Organization of Petroleum Exporting Countries in Vienna, said oil prices would continue to rise and that the global economy was now strong enough to support $75-$80 oil.
“The price rise is a function of optimism. Better things are coming in the future,” Naimi told reporters in Vienna.
The guy is flat out wrong.
Not only are economic conditions deteriorating, such a move on their part will only prolong any economic recovery as companies will need to pay more for energy. Their reaction will be to cut the need for energy.
The ONLY reason Saudi Arabia wants to see elevated prices is simply due to the fact that the majority of OPEC countries obtain their funding from the sale of oil. Since the recession kicked in, OPEC countries have faced hard economic times… their money well has dried up… and all of a sudden they need more funding.
Where do the naturally turn– oil.
So, consumption is down, that means producers reduce their inventories and refining capabilities, which in turn means OPEC needs to cut their production in order to inflate prices. Folks, we are almost paying 2007 gas prices simply because OPEC countries need funding for their government. Allowing for oil to be at this level, and not speaking out against price gouging, is another way of providing yet another bailout – this time to foreign governments.
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