CT Programmer

Not Calling Crude Oil Prices a Bubble For Now

ksmithdc, if you actually read this article, it explains the reason why oil prices have been so jumpy on any news is because supply is tight. When supply is not so tight, then world events don't have as much impact. When OPEC can ACTUALLY produce more, then that can increase supply. But while they won't admit it they're running full steam or pretty close to it. The strategic oil reserves account for less than 1% of our total annual use. And then the government would just have to fill them right back up. They are "strategic" (like if we went to war and got cut off from oil), not for bringing down the price of gas by 5 cents. Also, if you actually read this article or many of the other serious articles by people in the industry who actually know what they're talking about (not just anonymous AP journalists), its not speculators that are driving this. This is long-term supply and demand. China, India and the rest of the world are using more and more oil, and production is actually falling in the world. Russia is producing 5% less. Mexico is slipping. To keep production up even at the current level, there is more and more of this "marginal" oil (deep water, oil sands, etc.) being produced, but it is expensive to get at and thus drives up the overall price. Saudi Arabia's cost per barrel is about $1-5. The Canadian Oil Sands cost about $25-35 per barrel to produce. Huge difference. People keep thinking this is a bubble, and while its true that speculation may be driving the day to day price by maybe $10 here or there, the long-term trend is up, up, up. And even if America ever gets off its you-know-what and develops a REAL energy plan to ween us off oil, that will still take a decade or more. Bottom line: More demand, less production equals higher prices. Econ 101.