How could demand have caused the rise in gas prices ?

[Nick at Noon]

Here are the historic prices of crude oil per barrel. You will notice that when Reagan took office January 1981 the price of crude was $38 a barrel. It stayed below that price from then until April 2004.

http://research.stlouisfed.org/fred2/data/OILPRICE.txt

So people who say the rise in oil prices to $147 a barrel is due to "demand" are somewhat naive. To have been caused by "demand" would indicate the world's use of oil had almost quadrupled in the past four years -- but never did increase in the previous 23 years. That is an odd argument.

Gasoline prices are up because of the actions of Wall Street speculators and Big Oil companies. Those actions may or may not be related.

[WhiteTara]

1. yep, you're right

err....I mean correct!
Welcome to DU :hi:

[Overseas]

2. Useful to refute the old supply & demand excuses.

But oil folks will say that that was then and now oil has passed its peak and supply will become more limited.

Just like ol' T Boone said regarding why alternative energy systems weren't developed earlier. "Cheap oil," he said. Like it was a magical thing. Cheap oil. That's why. No explanation of how we had cheap oil while Europe was paying much more. The oil men pushed and got big subsidies. Not natural "market forces" like supply and demand.

[Truth4Justice]

4. Fuel prices in Europe are higher as they tax the hell out of it to fund thier programs.

[zbdent]

12. old saying in England, and likely applies in Europe

"Americans think a hundred years is a long time and a hundred miles is a short distance ..."

I wonder what the average mileage is for the average European ... compared to the average American ...

[Truth4Justice]

14. Great saying, that. I wish we had universal healthcare like the Europeans, as well. The US blows.

[JackRiddler]

3. Please note: demand need not quadruple to cause the price to quadruple!

Thanks.

A poll from a while ago...
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3486640


Oil over $130 per barrel.

What do you think is the *single* greatest ultimate cause of the rise in oil prices since 2004? (Obviously some of these factors overlap, and perhaps all of them have an effect. Feel free to rank them in your post.)



Extraction capacity per year reaching its maximum limits (Peak Oil), or anticipation thereof

Profit-taking speculation on ICE and similar markets

Effective "redlining" because Iraqi oil production is far below potential output

Fear of instability prompted by Middle East and other regional situations (Venezuela, Nigeria)

Decline of the US dollar, in which oil is priced

Demand rise globally (not in US, but globally: India, China, etc.)

Oil company hoarding and deception

Transportation (cars, SUVs, air flight) and production system

Policies of the George W. Bush government

[pampango]

8. It reminds me of a famous painting that sold for $1 million at auction

then a few years later it sold for $3 million. There weren't necessarily three times as many people trying to buy it, rather there may have been just two bidders who were willing to pay that much. The supply of that famous painting is fixed (there's only one), so the price fluctuates based on the demand (desperation?) of potential buyers.

Oil is similar in that the supply is almost fixed whether you believe the peak oil theory (there just ain't that much new oil out there) or big oil conspiracy theory (they could pump more, but why should they?). Most countries are pumping as much as they can at $100+ a barrel.

When China, India, or South Korea want an additional barrel of oil because their economies are growing, they effectively bid against each other (and all of us whose economies are not growing but still need oil) for that new barrel of oil. (And you have the speculators who try to figure out how much a desperate buyer will be willing to pay for a barrel of oil a few months from now and bet that the price will go up or down.)

It must be pretty nice to own something (oil) that everyone wants in increasing quantities, there is a limited supply and you have it. You can just sit back and watch those oil-hungry nations bid against each other for the right to hand their money over to you. ;) The price will go as high as the bidders are willing to take it. Of course, the price can fall just as fast once the peak summer demand is passed, more economies slow down, alternative energy technologies gradually take over and the bidders' psychology changes from "How much do I have to pay for that barrel?" to "How little can I get away with paying?". Trees don't grow to the sky as they say.

[Sanctified]

5. China and India now have citizens with disposable incomes and automobiles. n/t

[AndyA]

6. China is responsible for 40% of the increase in demand for oil in recent years.

The Chinese are buying big American cars and SUVs...in fact, there's been a 43% increase in SUV purchases recently in China, and Buick now sells more cars in China than it does in America.

Oil speculators driving up the cost of oil.

A weak American dollar, due to poor policies of the Bush Administration.

Oil company price manipulation.

No, demand did not increase enough to warrant recent prices, and if we had a Congress worth a turd in a toilet, they'd have already done something about it, instead of allowing high gas to bring down our economy the way it has.

[Xenocrates]

7. Way, Way Related

(minor note.. these prices reflect West Texas Intermediate.. which prior to 1985 was the median oil type, but after that Brent crude is the median oil type, not WTI)

Partly due to demand, which is always high.. almost constant. That's an interesting view of historic prices.

Like that jump in Jan 1974, when OPEC doubled its price for crude. We like to think of the market as this nice place where everyone plays by the rules. But OPEC never plays nice. When you think Big Oil, don't just think ExxonMobil..

But its also more about supply. What would be really interesting if you were able to pinpoint events in that timeline that cause a inflation/deflation of prices. We're talking speculators after all. The suits on Wall street that look for determining factors in the future supply of oil. When you see the news report for $147 for a barrel of oil.. that's a barrel of oil in the future, not now.

So back to the historic view.. 1978, 1979, 1980.. Two oil tankers crashed and dumped their oil, Saddam Hussein took power in Iraq, and later invaded Iran.. Oil kept going up and up.. and that extra $$ caused more drilling, more exploration, leading to the oil oversupply of the late 80s, 1990s. Look at it.. oops.. a bubble in 1990,1991.. huh.. wasn't there a short war in Iraq? The bubble grows again in 2000.. Dubya isn't in power yet.. 9/11 oil tanks briefly, must've had something to all those airplanes landing at once.. but its back up again.. Building up to war.. 2002..2003.. War.. Hugo Chavez.. The collapse of Enron.. Elections in 2004.. Hurricane Katrina.. all those oil platforms in the gulf getting wasted..

And then the prices went.. crazy.. there didn't seem to be a key event relating to the prices.. other than this huge mortgage/banking crisis.. is it an artificial bubble.. do those speculators know something we don't?

[depakid]

9. LOL

Yep- oil is an infinite resource. It's everywhere! All we have to do is drill for it and build more refineries and YAY! Cheap gas for everybody!

[dysfunctional press]

10. ummmm....china perhaps?

worldwide production is flat, but worldwide demand continues to rise...and not enough new deposits are being found to keep the future supply in pace with that demand.

[Xenocrates]

11. No new deposits.. and current deposits that are either locked up and/or inaccessible (nm)

[dysfunctional press]

13. there have been some new deposits found recently- off brazil for instance...

but they aren't all that large, and won't sustain future demand all that long.

[crimsonblue]

15. speculation, the war in Iraq, and shadey business practices

are to blame. Not to mention that Saudi Arabia cut production from 2005 by more than 500 million barrels