What is the reason for oil price hike?

Question

when will its cost come back to normal?why is that the price of oil has increased?

Answer 1

The quantity of petroleum is decreasing, and the demand is increasing.

Answer 2

Several reasons.

1. Increased global demand.  While the demand in the US is going down a little, demand in places like China, India, etc. has risen much faster.

2. Decreased production.  In places like Russia and Mexico, this is because of high taxes (what they call "windfall taxes" in the US) making it less cost-effective to dril for hard-to-reach oil,  In places like the US and Canada, it's because we know where the oil is, but the environmentalists get the drilling blocked.

3. Rampant price speculation.  People bid for oil in the future, expecting the price to go even higher as demand rises and production decreases.  This becomes a self-fulfilling prophecy.

4. Weak dollar.  A weaker dollar buys less oil, so prices per barrel rise.

When will it go down again?  Probably no time soon.

Answer 3

Some great answers here, that FWIW I and my Master's classes in International Economics would say have validity.

#1- the weak dollar.  Caused by the sub-prime explosion and uncertainly as to what the US is going to do foreign policy-wise.  Also due to the huge US deficit (partly thanks to a large defense budget without a concommittant rise in taxes. The first ever in US history that a war's being fought without increasing tax income.)  I think this will improve with the new administration whichever party wins the election.

#2- Increased demand.  Actually US demand over the last year has fallen almost 20% from the previous three. That's a very significant decrease in consumption.  However India and China's demands are increasing.  Increased demand, increased prices.  Simple econ.

I think speculation is tied to both of these.  Yes, it drives up prices somewhat, but it is more a reflection of 1 & 2 in the market, than an influencer.

BTW, the occasional spew about "oil companies" is just not true.  They are now essentially commodities brokers, they don't artificially reduce supply to drive up prices (OPEC excepted).  Simply because if one company did, other companies would buy their oil elsewhere to undercut their marketshare.  Again simple economic action in the market.

Answer 4

It's increased mostly due to fears of supply becoming harder to get at- production is in fact being throttled by OPEC- they see no reason to boost production and lower prices until people stop buying at the inflated prices produced by global speculation and a weak dollar.

Answer 5

I would have to agree that more than 40% is speculators.

Secretly, countries with better realtionships can still buy oil at $70 per barrel EVEN NOW. To say that the current $130 price is ARTIFICALLY INFLATED, is an understatement.

What do you think would happen if OPEC increased the output suddenly and significantly? just a 5% increase, followed by a second increase to 'seal the deal', would cause the market to collapse. Speculators would be scampering to get rid of oil bought at the higher prices... the effect would be the REVERSE of what is happening now.

Where would a 'demand and supply' arguement fit in THEN? The excess 'demand' in the marketplace is being driven by people buying oil with no intent to actually 'recieve' or 'consume' the oil....speculators. THAT IS NOT natural supply and demand economics.

Answer 6

When the value of the money used to buy oil goes down the price goes up.

The demand for oil keeps rising, so they (the oil companies) can justify the price.

Answer 7

greed!

Answer 8

The price is going up because of wall street oil price speculators (mostly).

At first the price was going up because the USA economy was weak (meaning USA dollar is weak).  So the oil producer wanted more USA dollar for the same barrel of oil.  But then oil speculator stepped in and drove up the price (and that is the cause of most of the price jump).

Good Luck...

Answer 9

you are the reason. and me. and everybody who buys gas or petroleum products. supply and demand, that's the name of the game. we demand tons of oil so up goes the price. works like that in all markets and the markets rule. always have. always will. you think it's bad now? wait till august when peak summer driving happens. ooooooooh yoweeee. how does six bucks a gallon sound?

haha comair. you know less about petroleum economics than you do about flying. wouldn't have thought such a thing possible. hahahahaha. racist too.

Answer 10

Google "enron loophole" for insight into this question. Big money stands to make even more big money through unregulated commodities speculation. The Senate has been aware of this since at least September 2007:

http://levin.senate.gov/newsroom/release...

To quote from that link:

"Earlier this year, [2007] the Subcommittee released a report, “Excessive Speculation in the Natural Gas Market,” which found that a single hedge fund named Amaranth dominated the U.S. natural gas market during the spring and summer of 2006, and that its large-scale trading significantly distorted natural gas prices from their fundamental values. The investigation examined millions of trading records from the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) to track and analyze natural gas trading in 2006. The report concluded that the current regulatory system was unable to prevent price distortions and excessive speculation, because much of Amaranth’s trading occurred on an unregulated market. The report recommended closing the Enron loophole to restore the CFTC’s ability to police all U.S. energy markets."

That's natural gas, but oil prices are subject to the same skew.