Oil Prices Based On “Future” World Unrest Not Supply And DemandBy Mary Phillips on February 9, 2011, 1:32 pm
Since mid-January, oil prices have stubbornly stayed near or even slightly above the $90-a-barrel mark, levels not seen since 2008. The price of jet fuel on the spot market has soared 44 percent in the past year, to $2.80 a gallon, with most of the increase coming in the past six months.
Egypt controls the Suez Canal and a nearby pipeline that together carry about 2 million barrels of day from the Middle East to customers in Europe and America. That’s a relatively small amount, compared with the 87 million barrels consumed worldwide every day. Petroleum continues to move through the canal and the pipeline, but traders fear protests could spread to nearby OPEC countries and disrupt supplies.
Gas Prices Affected
Crude oil costs account for two-thirds to three-quarters of the price of a gallon of gasoline, according to Tupper Hull, vice president of strategic communications for the Western States Petroleum Association, a trade association representing oil companies in six western states.
Based On Future Danger
Michael Kelleher, an energy trading analyst at Bord Gis commented: “Rising oil prices suggest that the commodity has found a new, long run trading range. The recent higher prices are not due to supply and demand fundamentals but rather the social unrest in Egypt and the surrounding region. While OPEC is keen to avert any danger posed by higher oil prices to the global economic recovery, they say that releasing spare capacity will not ease prices in the current circumstance.”
Traders will also be watching closely the latest U.S. crude inventory figures this week for insight into the strength of demand for oil. The American Petroleum Institute is scheduled to announce its supply data later Tuesday while the Energy Department’s Energy Information Administration reports Wednesday.
“Improvement on virtually every economic front except the housing market has generally been surprising on the bullish side during recent months,” Ritterbusch and Associates said in a report. “Most oil demand forecasts across this year may require some upward revisions especially if the employment picture improves enough to begin forcing some meaningful improvement in gasoline consumption.”