Why Crude Oil is Trading so High...
Allot of people are wondering why crude oil is trading at $114 and continually climbing in price and why gas and fuel prices are rising as a result.
Many people are claiming it to be because of the US domestic oil companies racketing the system, but such goes against sound economic theory as its unlikely all five domestic oil companies would intentionally engaged in such a racket without being forced into a cartel by the federal government. During World War I, all the US oil companies were cartellized and the legacy of the US Fuel Administration survives in minor fashion of federal regulations of US oil industry. 1935 saw the Conally Hot Oil Act that made it illegal to ship oil between the states over the state's quota. The current US oil industry is a regulatory mess even though the 1935 act was eventually repealed, but in its place was foreign oil import quotas in the 1950s to the eventual dramatic reduction, and in some places halt, by environmental reasons of oil production in the US.
The main problem though is more recent, it comes from how oil is treated by other nations. To my understanding, the United States treats the oil as a product of the labor the oil companies put into obtaining the oil, in conjunction with the mineral rights on federal lands and certain oil royalties applicable in few states, particularly Texas and Alaska (Permanent Fund). However other nations, the oil reserves are exclusive to national oil companies and the oil companies are a large source of "cheap" government funds. This has become a problem because the cost of improving extraction requires capital improvements and many nations are unwilling or just plain unable to provide the necessary capitol to invest in oil production, so a preventable drop in supply is causing demand problems and its not just effecting the US. Several nations within the last few years no longer export oil, particularly Indonesia and very soon, Mexico because their domestic supply is dropping, likely because of poor investment of capital into oil extraction.
Also, national oil companies control 80% of the world supply of crude oil, with the US oil companies controlling just barely 5% of the world supply. This forces all of the world suppliers of refined fuels to spend large amounts of money for the privilege to conduct oil exploration or extraction in these countries (in order to preserve the nationalized monopoly) or spend higher than normal prices for the cost of obtaining crude because of large scale malinvestments of the oil revenue from the nationalized monopoly. These are not terms that a true capitalistic system would produce.
The recent inflation problems with the US dollar has created nasty high prices for US consumers because the Federal Reserve and federal government continue to print money and spend like there is no tomorrow. But the high trading price for oil is effecting other economies, particularly those who are wholly dependent on the US dollar for stability. This chart shows that the Euro is not immune to the price increases, which last month was above €70. Which also tells me that trading oil in Euros instead of dollars is not going to be particularly beneficial change to oil trading and is more of a political statement that would likely blow up in OPEC's face (what would stop Europe from abusing the privilege with its own currency inflation?).
Anyways with the huge push into alternative fuel sources, the likely best alternative for the time being will be electric hybrids as it reduces fuel consumption to only when its necessary, long travel or low batteries. Ethanol and other crop biofuels are a disaster, thermal depolymerization is a much better environmentally and much more economically sound method of producing an alternative fuel compared to ethanol.
-- John O.
Many people are claiming it to be because of the US domestic oil companies racketing the system, but such goes against sound economic theory as its unlikely all five domestic oil companies would intentionally engaged in such a racket without being forced into a cartel by the federal government. During World War I, all the US oil companies were cartellized and the legacy of the US Fuel Administration survives in minor fashion of federal regulations of US oil industry. 1935 saw the Conally Hot Oil Act that made it illegal to ship oil between the states over the state's quota. The current US oil industry is a regulatory mess even though the 1935 act was eventually repealed, but in its place was foreign oil import quotas in the 1950s to the eventual dramatic reduction, and in some places halt, by environmental reasons of oil production in the US.
The main problem though is more recent, it comes from how oil is treated by other nations. To my understanding, the United States treats the oil as a product of the labor the oil companies put into obtaining the oil, in conjunction with the mineral rights on federal lands and certain oil royalties applicable in few states, particularly Texas and Alaska (Permanent Fund). However other nations, the oil reserves are exclusive to national oil companies and the oil companies are a large source of "cheap" government funds. This has become a problem because the cost of improving extraction requires capital improvements and many nations are unwilling or just plain unable to provide the necessary capitol to invest in oil production, so a preventable drop in supply is causing demand problems and its not just effecting the US. Several nations within the last few years no longer export oil, particularly Indonesia and very soon, Mexico because their domestic supply is dropping, likely because of poor investment of capital into oil extraction.
Also, national oil companies control 80% of the world supply of crude oil, with the US oil companies controlling just barely 5% of the world supply. This forces all of the world suppliers of refined fuels to spend large amounts of money for the privilege to conduct oil exploration or extraction in these countries (in order to preserve the nationalized monopoly) or spend higher than normal prices for the cost of obtaining crude because of large scale malinvestments of the oil revenue from the nationalized monopoly. These are not terms that a true capitalistic system would produce.
The recent inflation problems with the US dollar has created nasty high prices for US consumers because the Federal Reserve and federal government continue to print money and spend like there is no tomorrow. But the high trading price for oil is effecting other economies, particularly those who are wholly dependent on the US dollar for stability. This chart shows that the Euro is not immune to the price increases, which last month was above €70. Which also tells me that trading oil in Euros instead of dollars is not going to be particularly beneficial change to oil trading and is more of a political statement that would likely blow up in OPEC's face (what would stop Europe from abusing the privilege with its own currency inflation?).
Anyways with the huge push into alternative fuel sources, the likely best alternative for the time being will be electric hybrids as it reduces fuel consumption to only when its necessary, long travel or low batteries. Ethanol and other crop biofuels are a disaster, thermal depolymerization is a much better environmentally and much more economically sound method of producing an alternative fuel compared to ethanol.
-- John O.