So what is really behind the rise in oil prices? Is it speculation, greed or a try to curb consumption?

Question

Some would indicate that the bubble will burst in the near future but what drives prices to almost unbearable levels?

Answer 1

It's all about supply and demand.  Supply growth is not keeping up with demand growth.  Speculative investors only trade "paper barrels", meaning they only trade the future contracts.  They never actually trade the physical barrels, so all that they buy, they eventually sell again before the future contract matures.  So the speculators have no supply or demand effect on the actual physical barrels of oil.  Hence, the blame placed on speculators is our incompetent govenment trying to place blame for their past mistakes.

Moreover, oil has a very inelastic demand curve, meaning that people will not change behavior (e.g. reduce use and therefore demand) easily.  So it takes significant increases in the price of gas to change the demand for gas and therefore oil.  Additionally, India and China, combined the largest component of demand growth, subsidize the gas sold in their countries, thus artificially increasing the demand for gas.  And while their middle class continues to grow (and buy cars instead of riding bikes to work), demand will grow as well, far faster than supply can keep up.  That's the issue.

Now, if only our government would open up restricted areas for oil drilling, we could increase supply and therefore curb the increase in price............but I'm not holding my breath.

Answer 2

considering 2/3rd of USA oil comes from ourselfs it's greed!

Answer 3

I think its greed, if we are going to pay, why not make more money?

Answer 4

It's excessive demand, both from Americans and the rest of the world.