A Hostage of the Times

Growing international concern about the global petroleum market is prompting Saudi Arabia to increase oil production from 300,000 to 500,000 barrels a day; the highest level since 1981.

However, it is unclear whether or not this "promise" of more oil will slow down the historic surge in crude prices, and how soon we, as consumers, shall experience any relief.

Drivers in California are paying an average of $4.50 per gallon, Missouri residents paying $3.80. It is not improbable to assume that consumers will be forced to pay almost $5.00 per gallon during the summer.

The United States of America has a dependency on oil that not only pinches the consumers' pockets but also continues to fuel OPEC's rising profits. Intense global demand, tight oil supplies, and the fact that a majority of the world's oil supplies originates from politically unstable countries, pushed the price of crude oil up to $139.89 a barrel this week.

OPEC (Organization of Petroleum Exporting Countries) was founded in 1960. The original founding members are: Iraq, Iran, Kuwait, Saudi Arabia and Venezuela. Over the next decade, Qatar, Indonesia, Socialist People's Libyan Arab Jamahiriya, United Arab Emirates, Algeria and Nigeria joined the organization.

The current price of oil per barrel has not been this high since the Gulf War in 1991. What are some of the factors that have set such a drastic increase in motion? 

Firstly, OPEC officials estimate that the production of world crude oil is running at 97%. Saudi Arabia is the "swing producer;" they have a significant spare capacity. 

Secondly, the high demand for oil has traders and speculators bidding up on crude oil prices in fear that the global supply of oil could be significantly threatened if there should be a sudden disruption to its production e.g. terror attacks. 

Basically, the oil industry profits, and the "fed up or fill up" consumers, are being held hostage to the higher costs at the fuel pump! The Department of Energy cites that the United States currently uses almost 20 million barrels of oil a day! $20 billion is spent each year on oil from the Middle East. By 2030, oil consumption in this country is predicted to rise to 28.3 million barrels per day.

One-tenth of the world's petroleum consumption is used by passenger vehicles; that is 40 percent of the 20 million barrels of oil used each day in this country!

The current Administration claims that the way to ease the excessive oil demand in the United States is to relax environmental protections by allowing drilling in pristine wilderness areas, and to expand drilling on public lands. Unfortunately, increased domestic oil production would not significantly reduce the demands that the U.S. has for gasoline and other oil refined products. 

A spokesperson for the Energy Information Administration states that gas prices will likely hover around $4.00 per gallon through 2009, whether it goes down, or increases even more dramatically, is anybody's guess. 

Furthermore, a risk-management firm says that a lot depends on the United States of America's relationship with Iran; the recovery of a weak U.S. Dollar, and the likelihood of a global recession that curbs demand. 

Forecasting crude oil prices…….a bit like trying to forecast the weather!

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