Why oil prices are stubbornly high

[CShine]

Show me the oil! That, in essence, is what the markets are likely to say about OPEC's professed intention to increase production in an attempt to lower oil prices. In the past, mere words from OPEC ministers were enough. Oil prices shuddered and fell at the merest hint of opened spigots. But no longer. As the 11 oil-producing and exporting nations meet Thursday in Beirut, a different factor is in play: Spare production capacity is now at one of its lowest points since the early 1970s.

Tight inventories and rising demand in parts of the world, most notably China, have forced the world to operate on an unusually low margin. And any disruption could have serious consequences. Thus energy analysts believe that OPEC will have to back up its statements by pumping oil out of the ground. "It will take a physical presence of oil to deflate expectations," says Michelle Billig, a fellow at the Council on Foreign Relations and a former analyst at the Department of Energy.

The bulk of any increased output is expected to fall on Saudi Arabia, but skeptics wonder if the oil kingdom can keep its oil infrastructure secure while it pumps an extra 1.5 million barrels of oil per day. Wednesday the United Arab Emirates, the only other nation with spare capacity, said it would produce an extra 400,000 barrels of crude oil per day.

There will be even more urgency to the Beirut meeting because high oil prices preceded the last several recessions. And oil ministers are mindful of the fact that after similar run-ups, the price of oil has plunged as the world sought alternative energy sources. "The Saudis have an interest in seeing the price of oil fall," says Robert Hormats, vice chairman of Goldman Sachs International. "They don't want to price oil out of the market."

http://www.csmonitor.com/2004/0603/p01s02-usec.html

[many a good man]

1. Weak Dollar

Strange, the article doesn't mention anything about how a weak dollar might be driving up the price...

Here's a good snippet:

The US, in fact, is continuing to buy oil for its Strategic Petroleum Reserve. Some analysts believe the US is adding between 50 cents and $1 to the price of crude with its program, which is taking in 125,000 barrels of oil per day. Some members of Congress have pressed the administration to suspend the buying while the price remains high. Sieminski thinks suspending the program makes sense: "Why are we buying oil at $40 a barrel when most people think it's going back to $30 a barrel?"

[struggle4progress]

2. Ya think the Bushistas are using the Petro Reserve ...

to pump cash to their oil company buddies?

[Tandalayo_Scheisskopf]

3. Yup.

Koch Industries is the company that got the no-bid contract to fill the salt caverns with the oil pulled off the market. The Koch Brothers are some of the biggest Chimpy Conntributors in his career.

[struggle4progress]

5. Gosh. What a lucky guess on my part!

[kysrsoze]

4. It's also because there is WAY too much demand

The mileage today's cars get is ridiculously bad. Right now we need serious governmental regulation of fuel economy again, INCLUDING TRUCKS. Trucks/SUVs aren't subject to strict fuel economy standards.

In the long run, we need alternative fuels. The oil isn't going to last forever, especially with China and India coming up so fast. If we hadn't blown so much cash on Iraq and invested it in these technologies, the U.S. could lead the world. Of course that wouldn't line Bush and Cheney's pockets, now would it?

[Barkley]

6. I agree with you 100%!

Our oil situation is political (e.g. Bush and Cheney's pockets').

The political preferences of gov't elite and rich is to keep the economy as dependent upon oil as long and as possible regardless of the economic and military consequences.

[Jeff in Cincinnati]

7. This morning on the way to work...

The price of a gallon of regular unleaded leaped by thirty cents overnight. This is not supply and demand, unless demand suddenly spurted by 15% overnight on a Wednesday. What. Was Domino's delivering a whole shitload of pizza last night? Oil producers and refineries are reporting record profits this year -- we're being gouged and this administration is going along for the ride because they're invested.

Is anybody surprised that Bush isn't going to tap the Strategic Petroleum Reserve? That because his Texas oil buddies are reaping insanely huge profits because every time a bomb goes off in Riyadh, the price of crude soars another $1-2 per barrel. Does it cost any more to pump a barrel of West Texas Crude? Nope. But they get the profit.

I wouldn't be surprised if the terrorist cells in Saudi are being financed the Bush Family.

[PurityOfEssence]

8. Um...there isn't very much of it, and everybody wants it?

Do I get a gold star, Mommy?

[Beaker]

9. china is buying more and more of it-

and india won't be far behind.

btw- china is buying more and more of lots of stuff- most scrap metals have more than doubled in price, to feed china's growing hunger for raw materials.

[napi21]

10. Lumber prices have almost tripled because of China demand too.

I was shocked when I saw the price of a sheet of plywood the other day at Home Depot.

I've also heard from builders that they have had to drastically reduce the number of homes they're building because they can't get concrete to pour the foundations. They claim they are being told it's all going to china.