Oil Investors Drive Up Diesel and Gasoline Prices

Volume 1 Issue 3 - Opinion

Article Index
Oil Investors Drive Up Diesel and Gasoline Prices
Smart Energy Policy
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fuel-nooseSaudi Arabia, ExxonMobil, Warren Buffett: if you are an oil producer, retailer or investor, you have to be pleased with the recent jump in oil prices. It is, as Iago says, money in your pocket. More money for every barrel that you produce, sell and resell (at, of course, an even higher price). But you’re none of the above, you’re you, and each time you have to fill up that oversized tank with low-sulfer diesel, it feels that the noose closes a little more tightly.

In the Winter 2007 issue, I wrote of the likelihood of oil breaking the $100 per barrel mark some time this year. In hindsight, that prediction appears to have been cautious. We are well past that mark and the rise in oil prices has quickened, not slackened. Citing the current per-barrel price in the $130’s will likely date this article even more quickly than that one has already been dated. Investment houses are predicting that $200 per barrel oil is around the corner and other experts have said that $12 to $15 per gallon fuel prices are “inevitable.”

In an effort to help the GM diesel community, the maxxTORQUE staff has put together an article to help you maximize fuel economy (see page 32).

In this column, I want to focus on why oil prices have tightened around our throats. Some, not all, of the factors that are contributing to the frenetic rise in oil prices include:

  • Increasing demand
  • Stagnant supply
  • Decrease in US production and
  • Investors.

At the root of the problem is the fact that the world in which we live is consuming more oil than ever before and little, if any, additional oil is being produced to compensate. While there are promising discoveries in the Bakken fields of the Northern US and Southern Canada, US domestic production has actually dropped 50% over the last 20 years. Recently, US President Bush leaned on the Saudis to increase production. The Saudi response? The problem is not one of low oil stocks in the West but a weak US economy. The Saudis insist that raising production will risk a glut of oil that would hurt them and the other members of OPEC.

Supply and demand may lie at the heart of the oil problem, but it does not, alone, account for the current high prices. Oil no longer sails a straight line through the Suez to North America – at least not on paper. Investors, desperate to find a home for their money away from a free-falling US Dollar, purchase the oil in a supertanker and resell it to the highest bidder, betting on a jump in oil prices caused by the current high demand. This adds another middleman to the equation: another group that takes its cut and passes the cost on to you and me – we end up paying at the pump, at the grocery store, at the tire shop and everywhere else products are transported.


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