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Obama calls for urgent overhaul of national energy policy

Peter Stone — Wed, 30 Mar 2011 20:38:11 +0000

President Obama recently called for a massive overhaul of the energy policy of the nation. Image from Wikimedia Commons.

President Obama has called for a massive overhaul of American energy policy. At a speech at Georgetown University, he announced that he intends to push for greater use of natural gas, spur development in renewable energy technology and reduce American imports of oil. Republicans are accusing him of being hypocritical about domestic oil production.

Speech from president causes spike in natural gas prices

President Obama recently gave a speech at Georgetown University, in which he called for a drastic overhaul of the energy policy of the nation. During the speech, Obama said that he intended to spur greater use of natural gas as transport fuel, which led to a 2 percent increase in the price of natural gas on the New York Mercantile Exchange, according to ABC. Natural gas prices were also given a boost by the incoming cold front heading for the East coast, according to MSNBC. This does not mean natural gas prices will shoot through the roof and keeping the heat on will be impossible, but natural gas imports and production may increase. The president also called for greater development of alternative fuel vehicles and pledged to reduce oil imports by a third in the next 10 years.

Conservatives act as foil to oil initiative

Congressional Republicans were quick to cry foul over the President’s call for reducing oil imports and increasing domestic oil production, according to CNN. Mitch McConnell, the Senate Minority Leader, said the president was just “telling people what they wanted to hear” and was quick to point out that the Obama administration put the freeze on offshore oil drilling after the BP oil spill. A spokesperson for Speaker of the House John Boehner, according to USA Today, echoed a similar sentiment. The President was, though, observing that oil was not a limitless resource and that the United States cannot afford to act as if it were oblivious to that fact.

World oil supply

The president is touching on a real issue when it comes to the long term stability of the world economy. Scientists have been warning for decades that “peak oil,” or the highest level of output of oil possible before supply irrevocably declines, is lurking in the not too distant future. Oil prices have been rising for weeks, according to ABC, because of the possibility of a possible interruption in supply due to unrest in the Middle East, and oil makes the modern world possible. When supplies begin to run out, no amount of money will bring back the days when a person could fill up their gas tank with impunity, so any funding that goes into better alternatives to oil is money well spent.

Sources

ABC on Natural Gas

ABC on Oil Prices

CNN

MSNBC

USA Today

Delta Air Lines reduces services to Japan as fuel prices rise

Peter Stone — Tue, 22 Mar 2011 17:58:46 +0000

Delta Air Lines is reducing service to Japan, along with other major airlines, as the disasters there as well as rising fuel prices are wreaking havoc with the airline industry. Image from Wikimedia Commons.

Delta Air Lines has announced that flights to Japan will be reduced in the wake of the tsunami and earthquake. Falling demand and rising costs have caused numerous airlines to cut service to and from Japan after the nation was rocked by natural disaster. The entire airline industry is facing falling revenues and rising fuel prices.

Major airlines cut service to quake-ravaged Japan

The number of flights going in and out of Japan is being reduced across the board, as major airlines have too little demand and costs are too high to keep sending flights, according to Bloomberg. Service to and from Japan is being reduced by the Qantas JetStar line, Singapore Airlines, Cathay Pacific Airways and Korean Air Lines, as the earthquake that struck on March 11 has crippled demand.

Delta, according to Reuters, will reduce service levels 15 to 20 percent until May. The company estimates that the quake, tsunami and nuclear disaster will cost it $250 to $400 million. However, American Airlines has not yet announced it will reduce its service to Japan, which is provided through a joint venture with Japan Airlines. More than 9 million people fly to the U.S. from Japan each year.

Fuel prices wreak havoc with airlines

Airlines worldwide have been contending for the past several months with rising jet fuel prices. Rising oil prices due to unrest in Libya and the Middle East have been part of the increased cost of jet fuel, but harsh winter conditions during the past few months have also negatively impacted fuel prices and airline revenue. As a result, air fare increases are being implemented by numerous airlines. Southwest Airlines, for instance, has already had to raise air fares six times since the beginning of the year, according to Forbes, despite a 13 percent increase in the number of passengers flying with Southwest since the same period last year.

Expect summer vacation to cost a bit more

The increases in oil, gasoline and jet fuel prices have nothing to do with any actual shortage of supply caused by unrest in Libya, which provides only 2 percent of world supply, according to CNN. Speculators raise prices because of fears that the unrest will spread.

Unfortunately means that a full tank of gas is going to cost more during the summer, and some people may need installment loans to finance plane tickets for summer travel. How much more costly air tickets will become remains to be seen, but projections seem to indicate that the cost of travel will continue to rise for some time.

Sources

Bloomberg

Reuters

Forbes

CNN

Airline fare hikes blamed on rising fuel prices

Mary Rice — Tue, 08 Mar 2011 23:57:23 +0000

The rising price of jet fuel is being blamed for increasing airline fares. Image: Flickr / didbygraham / CC-BY

In the sixth such move since the first of the year, most airlines have raised their ticket prices. This recent $10 increase in standard fares is particularly significant because Southwest, usually a holdout, followed suit. The increase is being blamed on rising oil prices.

The rising price of an airline ticket

According to airline industry reports, the average cost of an airline ticket has increased by $60 this year. A ticket that would have cost $200 on Jan. 1, 2011, now costs $260. Not all airlines follow suit during price increases. Unless all airlines raise prices, the increases usually go back down. This latest $10 increase, however, was followed by Southwest Airlines, traditionally a holdout.

Low-cost carriers and fuel costs

Southwest Airlines is one of several low-cost airline carriers in the United States. Traditionally, Southwest Airlines has avoided many of the fees and rate hikes that larger airlines have undertaken, in an effort to keep customers. JetBlue and AirTran are also low-cost carriers that attempt to keep their prices low. These lower profit margins, however, open the carriers up to more price volatility. When the price of a barrel of oil goes up by $10 to $20, the airlines often raise their per-ticket price by a similar amount. The CEO of Southwest pointed out that Southwest will likely spend $1.3 billion on fuel in 2011, which is three times the total net income of Southwest in 2010.

The increasing cost of travel

As airlines are raising their fares, travel in the United States in general is getting more expensive. When individuals have long distances to travel, they are left with relatively few options. Airlines are the most obvious. Driving is also an option, though the rising cost of fuel can often put the price of a long-distance trip relatively close to that of an airline ticket. Bus service is also experiencing an increase in cost, thanks to rising oil prices. Rail travel is still a viable option in some areas of the country, but a train ticket that was $50 in 2008 is now $150, and service to much of the West is spotty. High-speed rails are still more theory than practice.

Sources

WSBTV
USA Today
News OK

Gas price rises nationwide fueling speculation of energy crisis

Peter Stone — Mon, 07 Mar 2011 17:12:13 +0000

Gas prices have been rising for the past two weeks, and there is speculation that an energy crisis may be imminent. Photo Credit: Micov/Wikimedia Commons/CC-BY

The average gas price is rising in every U.S. state and may hit $4 per gallon soon. Unrest in Libya, a major petroleum exporting country, has caused the price of petroleum to rise, which is causing the price of gas to rise as well. There is speculation that the U.S. government will tap its reserves to ease market conditions.

Government may tap emergency reserves to ease burden

Continuing turmoil in Libya brought oil exports in that country to a standstill, leading to a spike in oil prices. Currently, the average gas price per gallon hit $3.51 on Monday, March 7, according to CNN, and gas prices are on track to possibly hit $4 by summer. Prices have been rising daily for the past two weeks, increasing by 34 cents over that time. To curb runaway prices, the Obama administration is considering tapping into the U.S. Strategic Petroleum Reserve, according to Reuters. The Reserve is a storage facility that contains nearly 730 million barrels of crude oil, roughly equal to a one-month supply of oil for the entire United States. However, administration officials maintain that reserves will only be used if needed. The last release from the reserves was in 2005, after the Hurricane Katrina disaster, and it has only been used three times since it was established during the Nixon administration.

Prices skyrocket

Since Libya has plunged into unrest, there has been some trepidation in the world market for oil, but not because of a drop in supply. Libya produces less than 2 million barrels per day, and exports little oil to the United States. Saudi Arabia, by contrast, produces more than 12 million barrels per day, according to the Department of Energy. The Saudi government has also increased oil production by 25 percent, which will cover any losses due to a drop in production in Libya. The rise of gas prices is not due to a shortage in supply; rather, markets are uneasy because political turmoil is spreading to other oil exporting countries. A revolt in Libya is not catastrophic in terms of world oil exports, but revolts in Saudi Arabia would be.

Check with Gasbuddy

A good way for people to find the most reasonable gas prices in their area is to look at the website Gasbuddy.com. Gasbuddy is a network of websites where members report gas prices they see in their area. The Gasbuddy network extends from coast to coast, so there are few places in the U.S. or Canada that do not have some information posted. There is even a Gasbuddy app available for iPhone, Android and Windows smartphones. Since Gasbuddy relies on people reporting the gas prices they see, the site is fast becoming a resource that is quoted by major news agencies as well as a valuable tool for consumers.

Sources

Department of Energy website for world energy information

Gasbuddy

Tapping US oil reserves will not lower gas prices, Obama says

Thomas Hart — Fri, 04 Mar 2011 18:51:14 +0000

Oil industry analysts and the Obama administration say tapping the oil reserve would do little to slow rising gas and oil prices. Image: CC Michael Parry/Wikimedia Commons

Rising gas and oil prices tied to Middle East unrest have compelled politicians to demand that the Obama administration tap into the U.S. strategic petroleum reserve. The reaction comes despite a global surplus in oil production capacity and above-average U.S. supplies of oil and gasoline. The administration’s position is that the modest rise in gas prices isn’t enough to warrant tapping into U.S. oil reserves, which could spook international oil markets into further price increases.

Why Congress wants to tap the oil reserve

The U.S. strategic petroleum reserve, the largest in the world, contains 727 million barrels of oil, its full capacity. Nationwide, the average price of a gallon of gas has risen 28 cents in the past 10 days. Senator Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee, implored the administration to sell a major portion of the strategic oil reserve to stabilize oil prices and prevent a disruption in oil supplies. Other politicians are saying that in addition to tempering upward pressure on gas prices, selling some of the strategic oil reserve would raise billions of dollars for deficit reduction and help fund programs to reduce U.S. oil consumption, such as tax breaks for electric cars and hybrids.

U.S. not running short on oil

The Obama administration objects to tapping the U.S. strategic petroleum reserve as a reaction to the current spike in gas and oil prices, even though its 2012 budget proposal calls for selling $500 million worth of oil from the reserve to fund certain programs. The administration contends that tapping the oil reserve would send a false panic signal to consumers and markets when the U.S. is not running short on oil. A major oil storage facility in Oklahoma that supplies the interior U.S. has record inventories. Production is expanding in North Dakota, and a new pipeline is pumping fuel into the U.S. from Canada. U.S. crude oil inventories, according to the U.S. Energy Information Administration, are at 346.4 million barrels. U.S. gasoline inventories are at 9.86 billion gallons. Both inventories are at above-average levels for this time of year.

The solution to rising oil and gas prices

Oil industry analysts agree with the Obama administration that tapping into the strategic oil reserve now would have virtually no effect on oil and gas prices, and it would validate the fear that is driving up prices. Those who oppose tapping the reserve believe that rather than an oil supply shortage, a shortage in surplus production capacity is the real problem. Speculators are betting that spreading Middle East unrest will reduce surplus oil production capacity. If surplus oil production capacity in the future were significantly diminished, or perhaps even erased, the real oil price nightmare would begin. Adding the capacity to produce more oil, rather than a temporary infusion from the strategic oil reserve, will put the international oil markets at ease.

Sources

U.S. Energy Information Administration

Foreign Policy

UPI

Libyan crisis inflates fuel and food prices, says UN

Steve Tarlow — Thu, 03 Mar 2011 20:31:51 +0000

The price of dairy products have skyrocketed as oil prices have made production more expensive. (Photo Credit: CC BY-SA/James Rintamaki/Flickr)

As a result of the crisis in Libya, the already high food prices worldwide will likely be pushed even higher, reports CNN Money. A report by the United Nations Food and Agriculture Organization indicates that the food price index, which measures the price of a basket of food commodities, was up 2.2 percent in February. Currently, the index is at its highest point since it was created in 1990.

Prices up for most food commodities

While sugar prices were slightly lower in February, prices for cereal, dairy products, meat and nearly every other food commodity rose significantly. According to the U.N. Food and Agriculture Organization, U.S. consumers should expect the price of cereal to remain high throughout 2011, as inventories of wheat and coarse grains are low, and demand has remained high. Compared with February 2010, the cost of exporting grains was up 70 percent this February.

Oil prices pushed up by unrest in Libya

The price of a barrel of oil has exceeded $100 for the first time since fall 2008 – a by-product of violence in Libya that shut down oil production. As a result, U.S. drivers have paid 25 cents more per gallon of gasoline on average over the past 10 days, indicates the U.S. Energy Information Administration. This does not bode well for global food prices, said FAO director David Hallam in a statement.

“Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,” writes Hallam. “This adds even more uncertainty concerning the price outlook, just as plantings for crops in some of the major growing regions are about to start.”

Jeet Dutta, an economist at Moody’s Analytics, sees no uncertainty when it comes to the link between high oil prices and high food prices. The costs of food production and transportation cannot be discounted.

“Energy is a big part of the cost bucket in food production,” Dutta told CNN. “Retail prices lag behind commodities, so consumers haven’t felt the full extent of recent increases.”

Food exporters rebuild stockpiles, tighten supply

Even as global harvests expand, exporters are tightening the reins on such commodity supplies as corn, wheat and soybeans. This chokes global supply, which in turn raises prices. Global financial services company UBS AG projects that corn will reach $8.30 per bushel, a 15 percent jump over Wednesday’s closing price, while wheat will rise to $10 per bushel (a 23 percent increase) and soybeans to $15 per bushel (7.6 percent higher).

High food commodities have pushed 44 million people into poverty since June 2010, said World Bank President Robert Zoellick. According to World Bank data, those 44 million join the more than 900 million people globally who go hungry on a daily basis.

Sources

Bloomberg

CNN Money

Strife in Libya and the impact on fuel prices

Permit issued for deepwater drilling as oil prices start climbing

Peter Stone — Tue, 01 Mar 2011 16:45:22 +0000

The first permit for offshore, deepwater drilling in months was recently issued, just as gas prices are rising. Image from Wikimedia Commons.

The Obama administration has granted a permit for offshore oil drilling to Noble Energy. It is the first offshore drilling permit in months, as offshore drilling operations were put on hold after the BP oil spill. The decision was timely, as oil and gas prices are rising because of political turmoil in the Middle East.

First permit for offshore drilling issued in months

For the first time since the national moratorium on offshore drilling was lifted in October, 2010, the first permit for offshore drilling has been granted by the government, according to the New York Times. The Department of the Interior granted Noble Energy a permit; the permit is technically a re-issue, not permission to start drilling at a new site. Noble has a deepwater drilling rig off the coast of Louisiana that was ordered to suspend operations after the Deepwater Horizon explosion and oil spill in April of 2010. With the new permit, the company is able to resume drilling operations. The rig drills at about 6,500 feet below the surface.

Long wait for permits slammed by judge

The Noble Energy permit was granted a week after federal Judge Martin Feldman, from a court in Louisiana, ordered the Obama administration to process oil drilling permit applications more quickly. However, Michael Bromwich, the Director of the Bureau of Ocean Energy Management, Regulation and Enforcement insisted that the delay was not due to a political agenda and disagreed with the ruling. There are six more permits pending for deepwater drilling operations, though there have been 37 permits issued for shallow offshore drilling. The news that a permit had been issued also led to a moderate rise in energy stocks for companies with stakes in offshore drilling, according to Reuters.

Gas prices rising

Political turmoil in the Middle East has led to a nearly consistent rise in gas prices over the past few weeks, according to CNN. Oil prices have fluctuated, but there have been guarantees from oil producing states, such as Saudi Arabia, that any drop in production would be made up. Despite those guarantees, the ongoing Libya protests and similar situations in Bahrain, Oman, Yemen and Jordan have not inspired great confidence. Gasoline prices rose by 20 cents over the last week of February, marking a 27-cent rise in the cost of gasoline over the month of February. The average price of gasoline is sitting at $3.34 per gallon, well short of the national high of more than $4.11 in July 2008.

Sources

Rising gas prices could be a setback to recovering U.S. economy

Thomas Hart — Fri, 25 Feb 2011 22:34:13 +0000

Middle East unrest is driving up prices at the pump, dampening consumer spending when the U.S. economy needs it most. Image: CC Florence van Cauwerlaert/Flickr

U.S. gas prices were 6 cents per gallon higher on average than the night before when Americans awoke Friday morning. Since Sunday, U.S. gas prices have spiked 12 cents per gallon, and the trend is expected to continue. Economists warn that an oil price shock could be a major setback to the U.S. economy.

How high will gas prices rise?

The jump in pump prices, the largest one-day increase since 2008, is tied to a surge in oil prices. Oil prices have risen more than 10 percent in the last week and hovered at about $98 a barrel Friday after hitting the highest level since October 2008 — $103 a barrel — the day before. Pump prices vary widely in different states, depending on the gasoline tax. Hawaii led the U.S. in gas prices with a $3.757 per gallon average. Wyoming motorists only paid an average of $3.014 a gallon. Energy experts expect gas price increases, which lag behind oil price increases, to continue. This week’s surge in oil prices could result in an increase in gas prices of up to 37 cents per gallon in the next few weeks, according to Moody’s Analytics.

America’s petroleum ball and chain

Rising gas and oil prices are being driven upward by speculators buying oil futures on the bet that the popular unrest and an emerging civil war in Libya could spread instability across the major oil-producing countries of the Middle East. Moody’s said gas prices usually rise about 2.5 cents a gallon for every $1 increase in the price of oil. Economists estimate that each 1-cent increase in gas prices siphons $1 billion a year away from consumer spending. Moody’s estimates that if oil prices average $90 a barrel in 2011, spending on gas will eat up about a quarter of the $120 billion payroll tax cut that Congress had intended to stimulate the economy this year. Most of the money consumers spend on gas doesn’t stay in the U.S. economy. It goes to oil-producing countries where authoritarian governments hoard their riches while the people live in poverty.

Sources

Boston Globe

Gadhafi speech blames unrest on drugs and Bin Laden

Peter Stone — Thu, 24 Feb 2011 22:50:12 +0000

In a recently broadcast Gadhafi speech, the Libyan dictator blamed unrest on al-Qaida and drug-laced Nescafe. Image: Habib Mhenni/Wikimedia Commons/CC-BY-SA

In a recent Moammar Gadhafi speech addressing unrest in Libya, the North African dictator blamed the Libya protests on odd factors. Gadhafi claimed that unrest was caused by insurgents sent by Osama bin Laden and by the influence of hallucinogenic drugs. Gadhafi’s regime is quickly losing control of Libya.

Teenagers drinking spiked Nescafe blamed for Libya violence

Libyan ruler Moammar Gadhafi recently gave a speech that was broadcast on Libyan state television. In his speech he laid blame for the Libyan revolt on some unexpected parties, according to Reuters. Gadhafi said in a speech via telephone and broadcast over television that Osama bin Laden and al-Qaida were behind the turmoil in Libya and that violence in the North African nation was due to teenagers taking drugs. He said in the rambling speech that “their ages is 17″ and that al-Qaida agents were putting “hallucinatory pills in their drinks, their milk, their coffee, their Nescafe.”

Opposition holds one third of Libya

Nearly the entire eastern third of Libya is no longer under the command of Gadhafi or pro-Gadhafi forces, according to the Christian Science Monitor. There is still growing unrest and violence in Gadhafi-held cities such as Tripoli, but cities in the areas that have been “liberated,” such as Tobruq and Benghazi, have calmed considerably after military factions loyal to the dictator have been largely overcome. Factions of the Libyan army have been defecting to the side of the protesters as Gadhafi has ordered them to fire on their countrymen.

Oil prices still climbing

Despite reassurances from Saudi Arabia that oil production would not be affected by the Libyan revolts, crude oil prices are still climbing, and the New York Times says it’s because of the Libyan protests . In early trading on Thursday, Feb. 24, oil prices jumped to more than $100 but settled lower at $97.28, causing energy stocks to tumble. It is anticipated that unrest in the Middle East could lead to gas prices rising to $4 a gallon or more.

Sources

Christian Science Monitor

Christian Science Monitor

Oil prices spike as Gadhafi refuses to leave turmoil in Libya

Peter Stone — Wed, 23 Feb 2011 00:22:58 +0000

Unrest in Libya has caused oil prices to spike, negatively affecting stock markets as Moammar Gadhafi pledges retaliation against protesters. Image from Wikimedia Commons.

Political turmoil in Libya has led to an increase in worldwide oil prices. Libya is a major exporter of oil, and unrest in that nation could lead to a drop in the output of oil. Despite a growing number of people calling for him to leave, Libyan ruler Moammar Gadhafi refuses to abdicate his office.

Major oil producer Libya paralyzed by protests

The worsening turmoil in North African nation Libya has reverberated throughout the financial world as instability in a major oil producing nation led to a slide in stock markets, according to the Los Angeles Times. Prices of crude oil rose, which caused the Dow Jones Industrial average to slide more than 178 points downward during trading on Tuesday, Feb. 22. Crude oil futures rose from $91.42 per barrel on Monday to $94.49 on Tuesday. However, oil prices slid to $93.57 per barrel of crude oil after the oil minister of Saudi Arabia, Ali Ibrahim Naimi, announced that the Organization of Petroleum Exporting Countries would make up any shortfalls due to unrest in Libya.

Gadhafi refuses to leave

Moammar Gadhafi (also Gaddafi or al-Gaddafi), ruler of Libya, has refused to leave his post, according to The Telegraph. Unlike other rulers in nearby countries who managed a modicum of empathy for those harmed during protests, Gadhafi spoke on Libyan state television, promising further bloodshed should the Libyan protests continue. Gadhafi said he would use the death penalty on protesters and said he is completely justified in the use of force against dissidents who are calling for an end to his four decades at the helm of Libya. He also pledged that he wouldn’t leave and would “die a martyr.”

Libyan officials leave posts in protest

In an expression of solidarity with the protesters, several key Libyan officials and diplomats have left their posts and in some cases defected, according to the Christian Science Monitor. Ambassadors and other Libyan diplomatic staff at the United Nations and in India, Australia, the United States and elsewhere have called for an end to the bloodshed. Loyalists and security forces have shot protesters, and reports are emerging that African mercenaries have been called in by Gadhafi to shoot at crowds. Members of the Libyan military still loyal to Gadhafi have used jets and helicopters to fire on protesters.

Sources

Los Angeles Times

The Telegraph

Recent spike in gas prices the beginning of a long-term trend

Thomas Hart — Mon, 27 Dec 2010 21:45:34 +0000

Gas prices have soared over the past month, and experts expect oil futures to top $100 a barrel in 2011. Image: dykstranet/Flickr

Consumers can expect to pay higher gasoline prices in 2011 for a number of reasons. Global economic recovery and a falling U.S. dollar have sent crude oil futures past $90 a barrel in the past few weeks. Gas prices in many states in the U.S. average more than $3 a gallon, and energy analysts expect the trend to continue through the next decade.

Gas prices put a strain on income

The average gas price in the U.S. passed $3 a gallon last week for the first time since October 2008. Oil prices are also more than $90 a barrel for the first time since October 2008. According to the American Automobile Association, average gas prices in the U.S. have gone up 4 percent in the past month and up 16 percent from a year ago. The average driver spent $305 on gas in December, according to the Oil Price Information Service. Another study from PortiaGroup found that buying gas used 7.6 percent of median household income in 2010, up from 6.5 percent last year and 4.2 percent after the oil shock of 2008.

What is driving gas prices

Gas prices were already rising in November when Texas tycoon T. Boone Pickens predicted crude oil at $100 a barrel in 2011. Pickens last predicted oil at $100 a barrel in 2008. In July that year oil reached $145 a barrel. Gas prices in the summer of 2008 averaged more than $4 a gallon. Steep price increases forced consumers to curtail driving habits. As demand plummeted, prices adjusted accordingly. What is different about rising gas prices in December 2010 is that demand has remained constant. An increase in trading activity for oil futures and a falling U.S. dollar are driving the current spike in gas prices.

How high will gas prices rise?

Gas prices will keep rising and hit $5 a gallon in 2012, according to the former president of Shell Oil. John Hofmeister told Platt’s Energy Week that consumers can expect gas prices to soar along with global oil demand. Other analysts agree that $5 a gallon gas is inevitable, but say the global economy won’t grow fast enough to reach that price by 2012. In December the Organization of Petroleum Exporting Countries predicted a lower growth in global oil demand next year. Even with oil approaching $100 a barrel, OPEC hasn’t increased production.

Sources

International Business Times

Dallas Morning News

HR Morning.com

Rising oil prices driven by global weather, markets and politics

Thomas Hart — Tue, 07 Dec 2010 17:14:41 +0000

Crude oil prices topped $90 a barrel Tuesday, an increase of 29 percent since the end of September. Image: CC post1-lowem-2/Picasa Web Albums

Crude oil prices soared on Tuesday to pass $90 a barrel, a 26-month high. A weaker dollar and cold weather were cited as primary factors for rising oil and gas prices. A compromise with Republicans by the Obama administration that involved extending the Bush tax cuts, and traders hedging against the weaker dollar are also affecting oil prices.

Oil prices hit 26-month high

The West Texas Intermediate (WTI) crude oil price Tuesday climbed above $90 a barrel for the first time since October 2008. WTI crude oil, also called Texas light sweet crude, is used as a benchmark in oil pricing and is the commodity traded as oil futures on the New York Mercantile Exchange (NYMEX). Crude oil futures rose as U.S. inventories declined, according to the Energy Department. Oil inventories have decreased by 40 million barrels over six weeks, and supply is expected to tighten further. Demand for heating oil in the U.S. was forecast at 16.3 percent above normal for the week ending Dec. 11, according to the National Weather Service. In Europe, below normal temperatures are driving above normal energy demand.

The Bush tax cuts and oil prices

WTI crude oil prices surged after President Obama said he will agree to a two-year extension on all Bush tax cuts in return for extending unemployment benefits and cutting the payroll tax by 2 percent in 2011. Investors anticipate extending the Bush tax cuts will strengthen economic recovery, a good thing for oil prices and oil companies. A stronger U.S. dollar had been keeping crude oil prices in check, but recent Federal Reserve monetary policy moves have eroded the dollar’s value. In response, traders looking for a hedge against the declining currency have been buying WTI crude oil futures, driving up the price.

Gas prices expected to soar in 2011

Speculators have pushed wholesale gas futures up by 55 cents a gallon over the last three months. National gas prices have risen more than 10 percent on average in the past week. U.S. consumers can expect the trend to continue. OPEC’s governor, an Iranian, said said the rise in oil price does not yet compensate for the fall in the dollar and that oil will soon reach $100 a barrel. Energy analysts expect gas prices to approach $4 a gallon early in 2011.

Sources

Bloomberg