Who’s to Blame for Record Oil Prices

By Paul Eisenstein June 30th, 2008

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The oil price blame game is heating up. Members of OPEC, during an emergency meeting in Saudi Arabia earlier this month, blamed "speculators" for running up prices, an alarm more than a few industry analysts have also sounded.

But petroleum industry leaders, holding their largest get-together in three years, insisted speculators and greedy oil barons aren't at fault. Rather, they argued, blame belongs to the fact that there's been a dearth of new supplies found to feed an increasingly oil-hungry globe.

BP's CEO Tony Hayward said the argument that financial investors buying oil futures were behind a four-year rally that pushed oil prices to new records above $143 per barrel on Monday was a "myth."

"Supply is not responding adequately to rising demand," BP's CEO Tony Hayward told thousands of delegates at the World Petroleum Congress, adding that reports that cite speculators are merely "myth."

That position was echoed by speaker after speaker, including Antonio Brufau, CEO of Spain's Repsol, who said, "The fundamentals in the industry are the significant reasons for having these prices."

Jeroen Van der Veer, head of the Dutch giant Shell, acknowledged that his firm, the world's third-largest oil company by market value, did use energy derivatives. But he insisted Shell didn't speculate on oil prices.

There's been growing concerns about just how much oil is left in the world, particularly in terms of undiscovered petroleum fields. But speakers at the industry conference expressed concern that their exploration efforts are being limited by governments that restrict access to possible deposits, particularly by foreign oil companies, like Shell, BP, and Exxon.

"The problems (with limited growth) are above ground not below it," said BP's Hayward.

Who is actually to blame could prove academic, though there's growing pressure to reign in the rise in the price of a barrel of crude, which has nudged past $140 and which some insiders now expect to reach $200 before the run-up winds down.

Posted in : Enthusiasts, Industry News, fuel prices, gas prices |

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10 Responses to “Who’s to Blame for Record Oil Prices”

Contrary to what BP’s CEO Tony Hayward say I don’t think supply and demand are really causing the problem. There are to many other factors at play here. There are too many middle men skimming profits. There is too much manipulation of supplies and inventories. The price of oil nearly doubled and gas went up a third in just one year and yet figures are coming out that indicate we are using less gas, not more, probably because people are cutting back on gas. That clearly means supply and demand have nothing to do with these prices. Speculation is driving prices !!! Lawmakers blame loopholes in commodities trading like the Swaps loophole or Enron Loophole. Whatever you want to call it, It’s a get rich quick scheme and not much less obvious than a pyramid scheme. There is no way supply is causing this gas crisis. I put the full blame on speculators and commodities traders and I am sick of the smoke and mirrors. The meeting in Saudi Arabia hasn’t achieved any substantial results from what I can see. The price of oil is still going up. There must be something else that’s driving prices up and I think I know what it is. Although il appears to be a good hedge against inflation, a lower dollar and a low oil supply, in reality nothing could be farther from the truth. The main thing driving inflation up is oil prices and as inflation goes higher investors buy more oil driving inflation higher again. Some experts predict this will trigger the worldwide recession. This will result in lower gas consumption and it will free up more gas supplies.. I am no expert but even I can see the writing on the wall. Investors are going to loose their shirts on oil. We may be looking at another ENRON. Hedge funds will topple leaving old age pensioners with nothing. The government won’t be able to bail them out this time because the cost would be far to great. The CFTC and ICE will be too slow to react to the cracks forming in commodities trading so the govenment will finally step in. By that time it will probably be too late. http://www.nbtv.ca

The supply & demand is the problem. More cars in China & India plus people driving more. Here we are demanding that OPEC & Saudi Arabia produce more oil but we will not even try to get our own! The public will demand that we go after our own oil & the sooner the better! As soon as we do this the price of oil will drop.

Hey! Let’s not overlook the fact that Canada has the worlds second largest oil reserves. Saudi Arabia is only our friend when it’s in their best interest.

I agree with Ted. I don’t buy the ’supply and demand’ explanation for one second and find it irritating, irresponsible and immature repeated as such in the media or by ceo or some ‘oil’ analyst. A lot of it is just spin. CEO of Chevron in a recent interview on CNN admitted that he knows nothing about the markets, repeated the supply and demand tale while deflecting a question from Blitzer.
A few years ago, oil futures were bought mostly by those who actually needed the oil - today after the oil futures market has been deregulated by the Bush administration, anyone can take part in the market with less than 10% (and rest barrowed) and many do to hedge their risks. Hedge against
the weak dollar and the slow stock market and to make a quick buck. See : http://news.yahoo.com/s/bw/20080627/bs_bw/jun2008bw20080626022098;_ylt=AmE03yBV5LrKmW.4UA2SFhGyBhIF
See: http://www.atimes.com/atimes/global_economy/je24dj02.html
or http://www.atimes.com/atimes/Global_Economy/JE06Dj07.html

We all know they can manipulate supply and inventories to suit their greedy needs. I say there must be good money in oil futures. So many big institutions are investing in oil. Guess where all the money they make comes from. Yep that’s right, You and Me. They limit supply on purpose. The investores take advantage of market instability. They use miss-information to cloud issues and point fingers in the wrong direction to exonerate themselves. So for your argument sake if oil supplies dropped by 100 percent then the price of oil should double but the supply hasn’t dropped.. Rep. Bart Stupak, Chairman of the House Energy and Commerce Subcommittee on Oversight and Investigations, said “a lack of regulation has left the door open to potential manipulation and may have contributed to the meteoric rise of crude oil prices”. According to a recent disclosure report.The International Swaps & Derivatives Association, whose members include Bank of America Corp., Lehman Brothers Holdings Inc. and JPMorgan Chase & Co., spent $195,000 in the first quarter lobbying on futures regulation and other issues. It’s high time we did something about high gas prices or we risk global recession. Copy and paste the web address below into your browser address bar and tell your government representative that you want the loopholes in oil commodities trading plugged up (ie: the SWAPS LOOPHOLE and the ENRON LOOPHOLE). This is serious and needs to be addressed immediately. The link directly to the government site is

http://answers.usa.gov/cgi-bin/gsa_ict.cfg/php/enduser/ask.php

also consumer affairs

http://www.consumeraffairs.com/news04/2008/06/gas_prices269.html

My $0.02, in no particular order:
1. Short supply.
2. High worldwide demand.
3. Speculation pyramid.
4. Government taxes.
5. Inelastic demand vs. price. Americans will pay anything for fuel.
6. NOT oil company greed. The oil companies’ margins, at 7% are much less than other businesses. If, as an oil company, I could sell gasoline for $2/gallon, I would, and I would garner all the business. Why wouldn’t I do that? Because I can’t make any money doing so!

My $0.02, in no particular order:
1. Short supply.

that’s called OPEC. THESE Gfreedy bastards have ALWAYS limited the supply (production from their VAST reserves) to prop up prices. UIt only costs them $2 or less to get a barrel of their oil out of the sand in the desert.

2. High worldwide demand.

Yes. But this is |RAPIDLY FALLING in the US ever since gas crossed the $4 line especially, AND the irresponsible ASIAN governments HAVE to reduce and already have reduced their huige subsidies (india, China, others) that ARTIFICIAlly INCREASED demand there.

3. Speculation pyramid.
4. Government taxes.

These taxes are the Best TAXES POSSIBLE. VOLUNTARY SIN TAXES. YOU DO NOT CINSUME THE CRAP, YOU DO NOT PAY THE TAX.

5. Inelastic demand vs. price.

ONLY SHORT TERM INELASGTIC, MEDIUM AND LIONG TERM IS IS very very eLASTIC!

Americans will pay anything for fuel.

NO THEY WILL NOT. AGAIN, LOOK AGT 2008 AUTOP SALES. A HUGE CHANGE, AND ALL POINTING TO LOWER DEMAND FOR GAS.

6. NOT oil company greed.

tRUE, INSTEAD, OPEC GREED!

The oil companies’ margins, at 7% are much less than other businesses. If, as an oil company, I could sell gasoline for $2/gallon, I would, and I would garner all the business. Why wouldn’t I do that? Because I can’t make any money doing so!

aGREE.

I still think demand is pretty inelastic. Not all oil is converted to miles (only 28%) - much of it goes into producing electricity and heat and industrial usage. That demand won’t change much at all. Even if we stopped driving tomorrow, we still have to turn on the lights and heat our homes, and employ people at businesses which consume energy.

The american consumer is in total control of the long term oil useage. Sure it cost money to heat your home but have you seen the sizes of homes people are buying lately? Buy a smaller home. You’ll also end up saving money because there won’t be enough space for the wife to buy useless junk from Target.

Known oil reserves in 1975 were about 260 billion barrels . . . today know oil reserves are 1.2 Trillion barrels!!!
The problem in North America is we haven’t build a refinery since the 70’s. Its time to DRILL. Drill in Montana, Drill Offshore, Drill in Alaska. Start processing the Colorado Oil Shale (more oil here than in Saudi Arabia), make Montana coal into fuel. The enviro-whacks have shut down a large part of domestic production . . . making us dependent on off-shore producers. Time to get more self-sufficient.
Anyone been to Norway . . . they are rolling in cash from their 30 years of exploring in the North Sea, without a incident.