Oil costs are increasing and gas costs are approaching levels not seen since the summer of 2008. Despite a large volume of oil and gas reserves in the United States, speculators have managed to drive up the price of oil 21 percent this year. However the law of supply and demand is expected to prevail when consumers can no longer afford to sustain demand for gasoline. Source of article – Oil and gas destined to fall as prices pinch consumer demand by MoneyBlogNewz.

Costs on oil

The sweet crude for May delivery went up to its highest levels since September 2008 on the New York Mercantile Exchange. It went up to $111.90 a barrel. United States gas costs reached an average of $3.70 this week, their highest level since the summer of 2008 also. Many studied the rise in oil costs. There were several factors that caused it. Dollar based commodities, as crude oil is considered, is more affordable for traders because of the government shutdown that may happen. The markets are also betting the conflict in Libya won’t end in the near future; Libya has reduced its oil production of 1.3 million barrels a day to a trickle. Every single day it seems more and more customers are willing to pay the extra few cents for gas. The United States is awash in oil due to this. According to the U.S. Energy Information Administration, United States oil inventories rose by 2 million barrels in the week ending April 1. There was an increase in over 14 million barrels a day in the crud refinery.

The supply and demand problem

The U.S. used to blame OPEC for its oil shocks, but OPEC’s role in increased oil prices has been reduced. The United Arab Emirates oil minister said the prices are not controlled by the OPEC at an oil conference. Mohammed bin Dhaen al-Hamli said that OPEC is providing the industry with the oil it needs. Traders are starting to bet on worst case scenarios which have brought on an increase in oil prices, he said. The zero rates of interest from the Federal Reserve for hedge funds and pension funds are not helping. This just allows them to bet easier. All of the analysts explain oil future is increased than they should be due to these bets. They are higher by $15 to $20. The next betting craze might be triggered by elections this weekend in Nigeria, where output of 2.2 million barrels a day could possibly be disrupted by violence.

How much longer until an oil tipping point

There are signs that gas and oil prices have risen to a level that U.S. consumers can no longer afford. Gasoline demand has fallen 3.7 percent over the past four weeks. Unless there is another issue in the Middle East or in Nigeria, the oil costs could be getting to a tipping point. Before the Fed’s second quantitative easing plan (QE2) began last fall, oil was at about $90 a barrel. Crude oil may go down to $85 to $95 a barrel in June when oil and gas speculators change their minds.

Citations

Wall Street Journal

online.wsj.com/article/BT-CO-20110408-707562.html

New York Times

nytimes.com/2011/04/09/business/09markets.html?partner=rss&emc=rss

Industrial Fuels and Power

ifandp.com/article/0010617.html

Fortune

finance.fortune.cnn.com/2011/04/08/oil-at-the-tipping-point/