Why the crude oil price incerasing day by day?

Question

I just want to know how the crude oil barrel rate is decided and why it is increasing day by day?

Answer 1

The simple rule of demand and supply applies here. As supply of crude oil is limited and its demand is increasing, its price is responding to it. That is why the crude oil price is increasing. Also, we can't stop countries like Iraq and Iran to decide the price as they can dictate their terms because they have majority of the oil wells. I hope this solves your query.

Answer 2

Oil speculators on the commodities market are driving up the price.  But the price per barrell has actually dropped about $10 over the past few days.

That's why we should all support more oil drilling in the States.  Even if it will take 5 years to get that oil, the prospect of increased supply will effect the futures market.

Answer 3

GREED

Answer 4

IT's like anything else..the more you need or want something the more valueable it becomes...

Until we don't need it as much or find other ways of running things that need oil to run,,it will keep going up..

Supply and demand .....that's the name of the game ...

GREED is a huge factor sad to say.

Answer 5

If you really want to know the answer, and not just a political rant, go here

http://captaincapitalism.blogspot.com/20...

and here

http://captaincapitalism.blogspot.com/20...

and check out the charts.

Bottom line is this.  Enviornmentalists pretty much shut down energy production in this country over the past 30 years.  They put up pretty photos of Caribou and told scary stories about how big evil oil companies were going to kill Flipper and Bambi (which is silly, because there is no way the oil company could make money by killing Flipper and Bambi...) and pretty much made anything related to energy production economically impossible.  This was politically popular enough that people would vote for it.  However actually cutting down on energy usage was not popular and nobody has done so...everyone keeps buying plasma screens and SUVs.

This means that any new energy had to be imported.

For a long time we got away with that, as we were the world's largest consumer of energy. Europe had the North Sea oil fields. France has gone to nuclear power for their electricity needs, as has Japan, and the Communist countires got subsidized oil and gas from the USSR.

Then Communisim shut down in 1989. China went capitalist, and so has India.  It took about 15 years, but millions of people in both India and China got rich, and millions more made it into the middle class. They started buying cars, and refrigerators, and air conditioners, and TVs and computers and plasma screens just like Americans and Europeans do.

This meant they started using a lot more energy. For that matter Brazil and Eastern Europe did too. Demand started going up.

Supply stayed pretty much the same. Politics is the biggest limiting factor in where you can and can not drill. In the US it is enviornmentalists that stop the drilling, but other countries have other problems. Nigeria is very corrupt and there are rebles there that kidnap oil company employees for ransom and demand payoffs not to blow up pipelines and wells. In Venezuela, Russia, and Bolivia the governments simply came in and took over the oil fields at gunpoint.  Iran is doing everything it can to get Israel to attack it, any gelological exploration of Antartica (much less actuall drilling) is banned by a UN Enviornmental treaty.  You get the idea.

Around the middle of 2004 demand started catching up with supply.  Prices started rising.  This is responsible for the vast majority of the oil price rise.

The fact the Dollar has dropped hasn't helped any, but if you look at the charts on the webpage I linked to you see that oil has gone up for people that pay in Euros as well. You also see that other commodities have also gone up...for pretty much the same reason...enviornmentalists restrict our ability to produce these things, and demand for them is increasing.

Speculation in Oil, as with all commodities, is there because the trend is clear. Demand is rising, (look at China and India, etc.) and Supply isn't...and it won't. (Look at Nancy Pelosi saying that she won't even let the House take a vote on Offshore Oil Drilling.http://www.iht.com/articles/2008/07/17/a... )

This means the price will only continue to rise until one of two things happens.  A) the political will of the enviornmentalists breaks, and the laws get changed. This would mean that new supply would be coming to the market...not immediately but eventually, and that would mean that the price won't keep going up forever.  This would cause the bubble to colapse...much like tech stocks did in 2000, and the housing bubble is doing now.  

Oil has historically been a boom and bust buisness.  (1986 was the last big oil bust, and it was brutial.) This is not the first time that demand has caught up with supply. What normally happens is when the price gets high, new drilling takes place, and more supply is produced and the price falls back to it's original level.  The cycle normally takes about 7 to 10 years or so.  What makes this time different is that this is  the first time that politics has interfered and prevented the cycle from continuing.

The Dems are right about one thing... if drilling were allowed today, you wouldn't see new supply on line for about three years. However what they aren't telling you is that the simple   fact more supply WAS coming, even if it was three years away, would cause the speculators to drop out of the market...simply because they would see that the price would be falling back at some point and nobody wants to be the LAST guy to buy oil at over $100 a barrel.   That would probably put oil back in the $80-100 range...the new supply would drop prices as it came on line over time.

The other alternative is B) the economy colapses from high energy prices, plunging the US and the rest of the world into a recession, as demand (i.e. economic activity) shrinks back to a level that can be sustained at the current high prices. This would make the high prices permanent as the economy adjusted to them, and everyone would be unnecessairly poorer...as we would all be paying more for energy due to a poltically (not economically) driven scarcity.

Right now, given the polticall situation and Obama's lead in the polls....it looks like B is what is going to happen.  That means no new drilling till at least 2012...so the speculators keep on betting that the price will continue to rise.

Answer 6

It has also to do something with Commodity trading. It is being actively traded and resulting in price rise.

Also, there is fear of a US invasion on Iran due to the latter's nuclear programme. This amounts to concern over availability of regular oil supply from Iran in near future rasing the price of crude oil.