This is going to put a big crimp in the lifestyles of gas huffers worldwide, plus the rest of use.
What is the price level that will convince Americans finally to tax the motherlovin' hell out of Exxon and other evildoing oil companies?
Gas to Hit $7 a Gallon | Autopia from Wired.com: Both Qatar's oil minister and the head of OPEC can see oil hitting $200 a barrel before the end of the year and one analyst says gas could reach $7 a gallon within four years. That could mean cataclysm for the global economy.
The world got a little relief today when BP reopened its North Sea pipeline. But the price of gas is averaging $3.60 a gallon and the price of oil is flirting with $120 a barrel with no relief in sight. Market forces don't seem to be functioning in their normal order. OPEC controls only about half of the world's oil supply. Ordinarily, when prices spike skyward, the world's non-cartel spigots open wide. Why isn't this happening and who's to blame?
Oil Companies. Admittedly, obscenely compensated oil executives are laying low these days. Big Oil is rolling in profits. The Bush Administration's tax subsidies to oil companies, which were intended to prod exploration, should infuriate commuters. And yet the profit margins of oil giants are only slightly higher than the average for the S&P 500. And much of the wealth from these companies is pumped back into the economy in dividends, employment, capital spending and the like. Big Oil shouldn't get a walk (and windfall profit taxes make more sense than ever). But it's only a small part of the problem.
China and India. It seems to be a global fact that an automobile signals your arrival into the middle class. Without question, demand for oil in these countries is putting an inexorable upward push on gas prices. This isn't going to change in your lifetime, and it should sound the alarm for North Americans and Europeans that their middle-class lives will be threatened unless they develop alternative forms of energy -- fast. But the increasing demand for oil in China and India is a long-term trajectory. It doesn't explain recent spikes. And in the short term, it's self correcting. As oil prices spike, economies slow and the demand for oil eases. So does its price.
Ben Bernanke. Oil is currently priced in U.S. dollars. The Federal Reserve has feverishly tried to calm credit markets in recent months with lower interest rates, which are a kind of Valium for bankers. As interest rates drop, so does the value of the dollar. So it takes more dollars to buy a barrel of oil. Without question, the credit crisis is a more pressing concern than high gas prices. Credit, after all, is the life blood of an economy. It is widely expected that tomorrow the Feds will reduce interest rates again. But many analysts believe this is the last cut we'll see for a while. Fighting inflation -- including rising gasoline prices -- is becoming a priority. When interest rates begin inching up again, it will be bad news if you're taking out a car loan, good news at the pump. In the meantime, just be glad you don't have Ben Bernanke's job.
Speculators. It's never a good omen when fear swallows reason on the trading floor. But this seems to explain part of what's happening with the price of oil. Or maybe it's just greed. Whatever. The good news is that these speculative frenzies tend to end quickly. And ultimately, it's traders' fingers that get burned, not consumers.
Suppliers. Here's the mysterious missing piece in high gas prices: Saudi Arabia, Kuwait, Qatar and other OPEC members try to keep supplies tight and prices high. But England, Norway, Russia and other non-OPEC countries open the spigots to take advantage of high prices. This usually brings prices down. But supply disruptions have become rife -- even with OPEC countries, such as Nigeria, thanks to an insurgency that keeps shutting down its pipeline. Norway's production has dropped by 25 percent since its peak in 2001. Britain's has dropped by 43 percent. Alaska's Prudhoe Bay has dropped by 65 percent from its peak. Russia's is down and so is Mexico's. It's enough to make you think speculators are on to something. When does fear resemble reason? "