What oil price increase so much ?

Question

what the oil price increase so much? do you think the oil price will decrease in the near future ?

Answer 1

One important factor contributing to the current rise in worldwide oil prices has been increasing demand, from both expanding economies (such as China and India) and established markets. Demand growth is highest in the developing world. As countries develop, industry, rapid urbanization and higher living standards drive up energy use, most often of oil. Thriving economies such as China and India are quickly becoming large oil consumers. China has seen oil consumption grow by 8% yearly since 2002, doubling from 1996-2006, indicating a doubling rate of less than 10 years.

The sector that generally sees the highest annual growth in petroleum demand is transportation, in the form of new demand for personal-use vehicles powered by internal combustion engines. Cars and trucks will cause almost 75% of the increase in oil consumption by India and China between 2001 and 2025. As more countries develop, the demand for oil will increase further. This sector also has the highest consumption rates, accounting for approximately 68.9% of the oil used in the United States in 2006, and 55% of oil use worldwide as documented in the Hirsch report.

Another large factor on petroleum demand has been human population growth. Because world population grew faster than oil production, production per capita peaked in 1979 (preceded by a plateau during the period of 1973-1979). The world’s population in 2030 is expected to be double that of 1980.

An important contributor to price increases has been the slow down in oil supply growth, which has continued since oil production surpassed new discoveries in 1980. The fact that global oil production will decline at some point, leading to lower supply is the main long-term fundamental cause of rising prices. This is because there is a limited amount of fossil fuel, and the remaining accessible supply is consumed more rapidly each year. Increasingly, remaining reserves become more technically difficult to extract and therefore more expensive. Eventually, reserves will only be economically feasible to extract at extremely high prices. It is thought by many, including energy economists such as Matthew Simmons, that prices could continue to rise indefinitely until a new market equilibrium is reached at which point supply satisfies worldwide demand.

In May 2008, Uwe Beckmeyer, transport chief for Germany's Social Democrats, said a recent 25 percent rise in the price of oil to $135 a barrel had nothing to do with underlying supply and demand; “It’s pure speculation,” he said.

Also in May 2008, hedge fund manager Michael Masters testified to a US Senate committee about his belief that "What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors... In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. Over the same five-year period, Index Speculatorsʼ demand for petroleum futures has increased by 848 million barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!"

In June 2008, OPEC's Secretary General Abdullah al-Badri provided statistics supporting rampant speculation in the oil-related financial markets. According to Badri, current world consumption of oil at 87 million bpd is far exceeded by the "paper market" for oil, which equals about 1.36 billion bpd, or more than 15 times the actual market demand.

The price of oil is closely tied to the value of the US dollar because oil is traded in dollars. This has led to concern among some economists that the principal earned from the sale of oil may lose value in the long run if the US dollar loses real value.

In discussing the effect of the changing value of the US dollar on the real price of oil, however, it is important to include a calculation of effective exchange rates of the currencies in question, to separate the real and nominal values of those currencies. This method accounts for the amount that a dollar can buy (of electronics or food for example) compared to the amount another currency, such as a Euro or Pound sterling, can purchase. While the US Dollar has lost nominal value to other major currencies from 2001 to 2007, its change in real value has not differed significantly from other currencies.

In addition, by comparing the price of oil in various currencies to the fluctuations in the exchange rates of those currencies it is clear that oil price is no more significantly correlated to the value of the dollar than to any other currency. This also holds true in a comparison of oil price to gold price. Similarly, since the early 1970s, the price of oil has been negatively correlated to the value of the dollar, suggesting that the price of oil has more of an effect on the value of the dollar than vice versa. As developed economies depend heavily on oil for transportation, petrochemical feedstock, and industrial agriculture, this correlation would affect most currency values.

Besides supply concerns, many other issues have also had some effect on oil prices. Labour strikes, hurricane threats to oil platforms, fires and terrorist threats at refineries, and other short-lived problems are not solely responsible for the higher prices. Such problems do push prices higher temporarily, but have not historically been fundamental to long-term price increases.

Answer 2

you drive soo much.