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Location: St. Louis, Missouri, United States

Sunday, March 25, 2012

Why Oil Prices are Rising

Timothy Birdnow

Al Fin has an interesting analysis of rising oil prices in an era of increasing output.

The Saudis, it seems, are producing at a thirty year high, yet prices continue to rise. Why?

According to a Financial Times article cited by Fin:

"...the relatively modest move in the oil prices was a sign of some scepticism in the market.

“I don’t think it’s much of change for the market,” said Mike Wittner, head of oil research at Société Générale [investment bank] in New York. “The problem is the more they produce the less spare capacity they have. If they want to try to bring down prices not only do they have to keep on producing at very high levels they need to show the world that they are bringing on extra spare capacity.”

End excerpt.

So, investors see the tap being cut off at any time, and it makes them skittish. Al blames the "Peak Oil" mentality for this, the notion that we have reached the end of the line and can only ultimately look forward to diminishing supplies.

And with the prospects of a supply chain cutoff in an Iranian war means that stored oil becomes vitally important to maintaining world prices.

Perhaps. But there are other reasons.

First off, the rising prices of oil can be traced to the declining value of our money. Dollars are dropping value faster than Bill Clinton drops his trousers with big haired twentysomethings. Oil, an international commodity with prices set on the basis of world supply, is the canary in a coal mine for the health of money. Our greenbacks are, well, looking a little peaked.

But then, the Obama Administration has done everything it possibly can to stop exploration and drilling. Investors hear him when he says "we can't drill our way out of this" and rightly understand that he is going to squeeze domestic oil production. Indeed, he already has, with his moratorium of drilling in the Gulf of Mexico (and his subsequent footdragging on reissuing permits), on his killing of Keystone, of his general scorn for "Big Oil". EPA pollution regulations drive the price of gasoline up, and that takes it's toll.

In the end. we are living in an artificial oil famine. We starve in the midst of plenty, because we have a government committed to reducing our "carbon footprint" and to reducing the amount of energy - and the lifestyles - Americans can use.

This problem isn't hard to solve. Our leaders just have to WANT to solve it.

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