Oct
22
The Two Reasons Behind High Oil Prices
October 22, 2007 | 5 Comments
Many, especially those in the media and their followers believe that “the oil companies” are behind the high oil prices. With the oil companies controlling less than 20% of the world’s oil output that makes the theory pretty far from the facts, let alone the truth. It’s the OPEC countries and the others who export oil with quasi companies that are really government fronts that control the other 80% who are sticking it to us.
In the oil industry the leaders are known as the “Axis of Oil” made up of Iran, Russia and Venezuela. Add “Axis of Oil” to your list of market enemies along with OPEC. That makes two groups, OPEC and the Axis as real problems for consumers worldwide. And just to be sure we understand, Iran and Venezuela are members of both groups.
Their method is the tactic of stirring up instability to get the market to add in a “risk premium” to the market price so making the price rise artificially. Eerily, the usual suspects are in the Middle East where local wars seem to break out every few years with lulls in between to re-supply and rearm to prepare for the next round of fighting.
Last week crude oil jumped past $90 a barrel that market commentators suggest is a $10 to $15 premium per barrel. OPEC (The good guys?) earlier offered a half million barrel per day increase to help get through the winter, but that news is only answered by increased tensions. There’s the clue, just who is promoting the Kurdish rebels to attack Turkey anyway? There is a short list to choose from noted above.
Meanwhile, America is looking to exit Iraq. The other Middle East oil exporting countries worry that a US failure or exit will degenerate Iraq into a failed state that would spread instability and terror region wide. It occurs to some strategic thinkers that the insurgents are playing to the money, whether they know it or not.
The BIG and more fundamental reason behind the huge rise in oil prices is the US Federal Reserve. Federal Reserve chief Ben Bernanke decided last summer to bail out the banks who had sold poor products to people with the least able to cope finances and skills in mortgages and credit products like credit cards. Instead of requiring the banks to take their hit fair and square Bernanke choose to slash short term interest rates that has these immovable effects on all of us. The poor people who were saddled with poor credit products and mortgages have their lives ruined, the banks have been saved from their losses with a steep decline in what they must pay for money coupled with huge tax deduction for what they “lose”, which will be made up by other citizens and businesses paying more taxes. The next devastating effect is a sharp decline in the world price of the US dollar. With the dollar worth less it takes many more dollars to buy things on the world market. Like oil.
At one time not so long ago one dollar would buy more than one Euro, by about an extra 30%. Now one dollar won’t buy a Euro, you need more than $1.40. It’s about a 60-cent discount from what your hard earned dollar will buy. Obviously they oil product sellers are going to factor this in.
The Federal Reserve is responsible to maintain the purchasing power of the US currency, the dollar. But when the pushing from the banks eager to get themselves out of their problem came to the Fed, it chose to create some money. It went mostly unnoticed by the mainstream press, yet the fact remains that US M3 is up 14.7% in a year. It is not being ignored by gold, oil and others who sell worldwide traded commodities. The effect is a slowing of the US economy, which you may notice in whether you or someone you know still has their job. One way or another, all that new cash to bail out the banks will show up in the economy that in turn will become inflation.
OPEC has made clear in announcements and the numbers in the oil market back them up that there isn’t much OPEC can do to restrain oil prices. With all the speculation money coming into the market making bets that the price will be higher from some disaster event, the pricing isn’t in the hands of the cartel. Not that they’re complaining, but the collapse of the dollar has had a dramatic impact which in part is made up by the risk premium added to the value of oil.
So who to blame? At the top of the oil price, the money over $60 dollars per barrel, you can look to the banks and the Federal Reserve followed closely by the leadership in countries that egg on the world’s most dangerous troublemakers.
With the US government controlled by lobbyists and special interests that are able to put over their special needs onto the rest of us there is no end in sight.
But is it good for alternative energy and fuel prospects? The answer is no, unless investors and consumers realize that a $60 oil price is a pretty high benchmark now for the economic value in a barrel of oil. $60 is still a good number for competing to supply energy and fuels with most oncoming technologies well able to grow their markets at that price.
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I HATE RUSSIA, HONESTLY, WITH “LOVE”.
How can oil be $75 in the worst recession of this generation? They need to quit those who take no physical delivery and put big limits on them.
I just want to say that we’re the pawns in a much bigger game! There’s nothing left but those who will make money and they are the Corporate Sociopaths! These are the people who have learned to think like insects, and use apologists to explain the high cost of greed!
When I look at the information on why fuel is so high, I see nothing more than a bunch of empty justifications for greed! The point is: There is no justification at all! This is how we’ll be brought down as a country: GREED!
Truly that is all unless it’s stopped!