Oil Supply and Demand

Since the ease of the hurricane season, oil prices have fallen $9 a barrel from the record high of $55 a barrel. The last supply numbers however include ominous signs that price is likely to increase. With winter quickly approaching demand is likely to increase slightly and with production levels at only 1% above demand levels any increase in demand is likely to have proportionate effects on price.

In the latest report by the U.S. Department of Energy said that stockpiles of crude oil rose by 800,000 barrels. However, heating oil and diesel fuel fell by 1 million barrels or 14% below year ago levels. This is why diesel prices are often higher then gas prices at local gas stations.

Diesel fuel prices have soared above $2.10 a gallon up 60 cents from a year ago. U.S. Economic growth has contributed to part of this increase. U.S. consumers have been spending more and many of their purchases are contributed to higher imports. In fact, there has been a 15% increase in imports. Trains and trucks are packed full. Interstate commerce has had their hands full the last couple months and it is taken a toll on the diesel fuel supply.

Oil Traders have been keeping a close watch on oil supplies. Princeton University’s geologist Kenneth Deffeyes predicts global output will reach its limit by late next year and then gradually begin to decline. As price to sustain such production begins to divert consumers, demand will have to fall.

In the more immediate future, other suppliers of oil such as Yukon in Russia, and Nigeria both have political pressures that at any time could cause problems in the business cycle. Any reduction in supply would greatly impact price anywhere from fifty on up per barrel.


Maudi said...

The main reason why oil prices are so high is that of the current issue we have in IRAQ. There is plenty of oil in those middle eastern countries and we have been relying on them too long. We as a nation need to focus our efforts on sustaining ourselves with our own oil reserves. We here in the U.S. have a great amount of oil in Alaska and we have allowed the enviromentalist to stop exploration of those resources. I feel it is very important that we stand up and become self relient when it comes to oil. If the U.S. were to stop buying the oil from foreign countries they would have to lower the price in order to keep us buying their oil. Thus lowering the price of oil and helping the consumer.

pramahaphil said...

The main issue isn't the Arab's, its simply the fact the every environmental organization in the country refuses to open their eyes to the fact that America could easily become self sufficient. Arabic countries aren't even our biggest supplier of oil. Alaska alone sits atop one of the largest oil fields on the planet, and yet we can't utilze it because some animals may be affected.

I'm all for clean air and water, but to be honest Americans are ridiculously misinformed as to their woes at the gas pump. If gas prices are bugging you don't blame Saddam -- blame the Canadians and your local treehugger.

Dr. Tufte said...

-1 for spelling errors in StevePadilla2's post.

One factor that was missed in the post and comments was the high growth of China and the world economy as a whole this year. This has been a demand driven price rise.

As to self-sufficiency, precisely why would that be a good thing? Are we self-sufficient in anything else? Should we be? The answers to the last two questions is no. This should make you wonder why oil is any different.