Oil Prices Set To Rise

The price of oil is on the rise again, you can see it in the spiking gas prices. Of course we have an admin that wants higher energy prices which certainly is not helping the situation. Add to this the weakening dollar and you set yourself up for an oil rally.

RISING oil prices, believes Ali al-Naimi, Saudi Arabia’s oil minister, may soon “take the wheels off an already derailed world economy”. On the face of things, this concern is absurd. The plunge of $115 in the price of oil from its peak last July to its nadir in December was the most precipitous the world has ever seen. Demand for oil is still falling, as the world economy atrophies. Rumours abound of traders hiring tankers to store their excess oil. Rich countries’ stocks cover 62 days’ consumption, the most since 1993 (see chart 1). The average over the past five years has been 52 days’ worth.

If demand is falling, then why is the price rising? Well the OPEC cuts along with other factors are kicking in, but most importantly the underlying fears that led to Oil at 150 have not gone away.

The explanation is simple. Oilmen are worried because they believe that many of the factors behind the record-breaking ascent last year remain in place. Much of the world’s “easy” oil has already been extracted, or is in the hands of nationalist governments that will not allow foreigners to exploit it. That leaves firms to hunt for new reserves in ever more inhospitable and inaccessible places, such as the deep waters off Africa or the frozen oceans of the Arctic. Such fields take a long time and a lot of expensive technology to develop. Worse, new discoveries tend to be smaller than in the past and to run dry faster.

Whats needed is greater development of oil fields:

Oil bosses, OPEC ministers and anxious bankers all agree on what is needed to prevent this scenario becoming reality: lavish investment in the development of new fields and in exploration. Yet the reverse is happening. The oil industry is cutting its spending, bringing fewer new fields into production and exploring less. The International Energy Agency reckons that overall investment will drop by 15-20% this year.

The problem is that anti-oil politicians like Obama are encouraging "green" nonsense and discouraging fossil fuel development at the exact time we should be getting in front of the problem by expanding our domestic energy production. The problem is magnified by the control of oil fields by governments across the globe:

Then there are the state-owned firms in oil-soaked countries. These companies control the overwhelming majority of the world’s oil. The better managed and funded of them plan to continue investing despite the downturn. Saudi Aramco, the world’s biggest oil producer, recently completed a five-year scheme to expand its production capacity from 10m b/d to 12.5m b/d, at a cost of $70 billion. But in Russia, the world’s second-biggest oil producer, output is falling largely because private capital has been scared off by a series of expropriations, while the state starves the firms it controls of sufficient cash for investment. And most oil-rich states, naturally enough, are happy to see the price rise. Many have become used to bumper revenues in recent years and have struggled to balance their budgets since the price slumped last year.

Iran, Russia, Chavez, etc... These thugs love high oil as a means to prop up their regimes, expect no help from them. Of course Obama won't help us either but have no fear he has ready made talking point to provide political cover. When gas prices spike he will claim that is why I increased the CAFE standards for the future. Of course this has nothing to do with the economic pain inflicted on middle and working class Americans, but the president and his cronies will spout it nonetheless.