Serious answerers only...?

Question

Exactly what is driving the price of a barrel of oil upward? I need a logical explanation, please.

Answer 1

politics

Answer 2

The amount of oil avalible is going down, therefore the companies that sell it jump in and jack their prices up so they can get as much profit out of it while they can.

Answer 3

it is a situation that seems to defy logic. yes demand has increased but not by the quantities that would realistically cause such fluctuations from day to day.

it has been suggested that inadequate OPEC quotas and the uncertainty of Nigeria being able to produce at agreed levels due to some communities being in dispute with oil companies and the government has fuelled a further rise.

in my opinion, there also must be a lot of speculative futures/options buying. this works on the commodity markets, by presumptious buyer, buying today at a price against a future need.

as a example, an airline can decide to buy oil at an agreed price against future delivery/use. the purpose is it helps them plan flights, costs, prices, etc and secures "their tomorrow today" so to speak - smoothing over dramatic increases.

so you might find significant proportions of tomorrow's production has been traded, months before, based on speculative/presumptions opinions or using trends.

i can also reasonable conclude that, the more uncertainty in the oil market, the greater the volume traded on the futures market, which inevitably will increase price.

Answer 4

Most existing fields are old and production from them is declining.  This is especially true in the places which are politically the "safest" where it would be easiest to increase output if we wanted to.

Demand had grown much faster than increased supply, particularly due to rapid industrialization in the developing world.  Opposition to exploration in the US is turning out to be a big problem--it wouldn't have been a big deal, but with the growth of China and India, etc, now it turns out we needed that oil.  If we announced we were going after it, it would bring down world prices immediately as countries w/excess oil (mostly the mid-east) increased production to take advantage of prices that won't stay this high if the US were to increase production.

As long as the US doesn't explore, and there are no more major increases in output or major leaps in technology, the world will become more energy constrained, and, for the next decade or so, energy prices will keep rising.  $150 is, unfortunately, only the beginning.  Russia and other FSU countries have oil, but their fields are in terrible shape which means it is very hard to get much production from them.  Venezuela is the same.  Nigeria is off and on w/their political situation.  Sudan has oil, but you can see the trouble with getting oil out of there.  Mexico is like the US in not having explored outside its old fields so production is declining, and there is currently no political will to explore new fields.  The North Sea (UK and Norway) is mature--declining production.  The middle east is still the world's swing producer, and they seem to want to limit production to keep prices high.  Actually, to be fair to them, though, they don't have a lot of capacity to increase production from here in the short run.

There is a LOT of natural gas in the world that can be used if you liquify it to transport it.  That is not cheap, but it is economic at these prices.  I am surprised there is not more of that going on right now, except that remember, you need the facilities to use different types of energy.  Cars don't burn natural gas.  Electric utilities can.  Airplanes can't.

Answer 5

Well, part of the problem is that nobody really knows EXACTLY what is driving the price of oil upward.  It is such a confluence of all these different factors that it isn't just one, or two, or ten things.  There are several factors that I will lay out here for you:

(1) Investors' expectations.  This is also known as speculation.  If people expect the price of oil to reach $200 in 3 months, they are going to buy lots of futures contracts right now at $145-150.  This creates a higher demand for oil, and drives the price up.  Government studies have shown that this may account from anywhere from 30-70% of the increase in the price of oil.  

(2) Actual market forces.  Demand is outstripping supply by just a little bit right now (don't know the actual numbers).  Maybe something like, the world demands 26 million barrels per day and produces only 25 million.  I don't really know though.  But the point is, we are asking for more that we are making.  For all the conservation efforts in N. America and Europe, demand in China and India is growing at a phenomenal pace.  

(3) Jittery investors COUPLED with unstable situations in producers' countries.  Whether it is rebel fighters in Nigeria or a crazy dictator in Iran, oil producers each have unique situations that can affect supply.  While there might not be anything actually happening, just the rumor of a gunfight at a Nigerian well is enough to drive up prices for fear of a drop in supply.  This is similar to #1 but is more reactive than forward-looking.  

These are not all of the reasons that prices fluctuate, but it's a start.

Answer 6

Obviously it's a global conspiracy!  ;-)

No. Oil prices are controlled by supply and demand, the same as in any other market. As prices are rising, one has to infer that the global desire to consume oil exceeds the global ability to produce it.

Answer 7

In the short run there is no viable replacement for oil.  For most of it's uses none of the alternatives is available in the quantities of Oil used today.  George Bush is about to be out of office and will not be able to protect the oil industry.  The suppliers are expecting the bottom to fall out of their industry as the new president will not protect them.  They are trying to get all they can out of the system before the monopoly is ended.

Answer 8

As in any market, prices are set by supply and demand.  If there's a shortage, the price goes up until demand is reduced.  If there's a surplus, the price goes down until some of the producers don't want to sell.

Currently there's a shortage.  China is becoming more affluent and is consuming more oil.  Iraq is producing less.  Iran is producing less for political reasons.  America needs more than usual because mechanised warfare uses a lot of oil.