For a long time most America’s can’t figure out why oil prices have been so crazy over the last several years. Gas prices over $4.00 a gallon. Diesel fuel prices over $4.00 a gallon. We are actually producing more oil in the United Stated today then we were in 2005. We are also using less, so why are we paying more?
The market for oil is a global market more today than ever and will continue to be that way. Diesel fuel prices and gas prices are largely determined by global crude oil prices. These oil prices are affected by many different things in the world like: economic sanctions on Iran; deep-water drilling off Brazil; spare oil capacity in Saudi Arabia; auto use in China; less nuclear power in Japan
What happens in the Strait of Hormuz will likely have more impact on prices at truck stops and other retail outlets. Even though the U.S. doesn’t import a single gallon fuel from Iran it does matter. We have more oil rigs drilling in North Dakota producing twice as much fuel as they were just a couple of years ago. We live in a world economy for oil, diesel fuel and gas at that world now sets the tone on how much oil prices are going to cost.
There are dozens of factors that go into what happens with oil prices.
Here are the top five factors today.
- Iran the geopolitical turmoil has the oil market very worried. Even though the U.S. might not buy and oil from Iran other countries do. If they can’t buy from Iran, then they go to other countries they can buy oil, some of which might be the same as the U.S. Hopefully, Iran comes to its sense as I suspect it will in the next couple of months and this will ease.
- Rising worldwide demand. It’s hard to believe that in the U.S. we use less oil today than we have in over 10 years. Our population growth changes at a very slow rate and for the past 10 years if you wanted a car you had a car. It’s not that way in some of these other countries like China, India, Brazil and even Saudi Arabia. There population is growing as well as being moving into a class where they can buy cars. In our country the only product we are using more of now is diesel fuel, which happens to be the world oil for cars since most cars outside the U.S. run on diesel fuel.
- Speculation on oil prices. You have people bidding against each other and driving the price higher. Since the crude oil market and heating oil market move up and down so much throughout the day. You have buyers will to take a chance they can buy now and in a few hours or a day make back their money and a nice profit. The more uncertainty in the world the more speculation happens.
- As demand for oil products has increased worldwide, spare capacity has become more limited. Right now estimates are there is less than 4 million barrels a day in spare capacity. Saudi Arabia has about 2 million of those 4 million barrels but has been producing slightly more to handle the loss of Iran fuel in the market.
- U.S. infrastructure for refining product and shipping product on the pipelines. It has looked like for a while that 3 refineries would be closed in the Philadelphia area. The picture now is looking brighter with strong potential buyers. Our countries pipeline system is vast but old and there is capacity issues at times on these pipelines that cause diesel fuel market spikes or gas spikes in on area but a few hundred miles away, there aren’t any fuel pricing issues.
I believe that it’s fair to say that oil prices will continue to lead story lines one way or another for a long time. Just as they have in the past. Credit for some of the information in the story, goes to Wendy Koch, USA Today.