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Oil & Gas: What price will make people walk away from the pump?

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Oil & Gas: What price will make people walk away from the pump?

“What is the price at which people will walk away from the pump?” asked Michael J. Economides in his presentation to 250 LOGA members and state officials at LOGA's (Louisiana Oil & Gas Association) annual meeting in Baton Rouge, this past week.”My answer is $7.50. We are not even close to that,” he replied.

 

 

Economides coauthored with Ronald Oligney The Color of Oil, and is the author of a book to be released this month, From Soviet to Putin and Back. He is well respected throughout the world for his knowledge of global energy issues.

When asked if he expected the OPEC cartel to increase production to lower oil prices and give relief to the US economy, Economides replied, “The OPEC countries like $100 oil.”

The following day of Economides presentation, OPEC’s president, Chakib Khelil, and Algeria’s oil minister, said “If the prices are high, definitely they are not due to a lack of crude. They are due to what’s happening in the U.S., the mismanagement of the U.S. economy.”

You may remember President Bush going to Saudi Arabia this past January with his hat in hand, and pleading with OPEC to open the spigot. Again this week Bush asked OPEC to open the spigot and give relief to the U.S. sagging economy, only to be ignored. Bush said, “I think it’s a mistake to have your biggest customer’s economy to slow down because of high energy prices.”

Fadel Gheit, an oil analyst at Oppenheimer & Company in New York, said “OPEC is angry that President Bush wants them to increase production while the dollar is sinking and the administration is doing nothing about that. It’s really not surprising that they have ignored him.”

OPEC does not believe the high oil prices, which broke record highs three times this week, are the result of too little supply.

Analyst Victor Shum with Purvin & Gertz believes, “The primary factor causing the surge in oil prices is the surprising draw down in crude inventories, which caused traders to really react quite dramatically.”

OPEC believes 30 percent of the $100 per barrel price is because of financial speculators in the market, and that actually the real price of a barrel of oil is $70.

What is driving the price of a barrel of crude to record highs? Is it supply? In reality, there is sufficient crude supply in the market; however the surplus production capacity claimed by OPEC does not exist.

Is the price being driven by financial speculators? To some degree, absolutely. Also OPEC claims the decline in the value of the dollar is the primary reason for rising prices. The dollar is the currency used for oil trades. Then there is the geopolitical crisis that at any time could trigger prices to climb to record highs.

The record high crude oil prices are being driven by all of the above, some more than others. It is definitely an unpredictable market and will become more important to all of us in the foreseeable future.

At what price would you walk away from the pump?

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