Oil prices rise amid global economic worries

From the Washington Post:


With the world economy so weak, why are oil prices so high?

Economic crisis grips Europe, slow growth plagues the United States, and China’s breakneck expansion shows signs of a slight slowing.

 Euro zone leaders aim to stem the continent’s debt woes as protesters take to the streets in some countries to show their dissatisfaction with austerity measures.

Yet the global price of oil might set a record this year as consumption creeps up and world output struggles to keep pace.

The Energy Information Administration said this week that the average retail price of regular gasoline is the highest ever recorded during Thanksgiving week, 49 cents a gallon more than this time last year. AAA says this year motorists are on track to pay a record $490 billion for gasoline, burning a hole in consumers’ pockets.

Recently, prices at the gas pump have tapered off. AAA says that gasoline prices have dropped about 12 cents in the past month to a nationwide average of $3.33 a gallon for regular, giving holiday motorists some reason to give thanks.

But this season is usually a period of relatively weak gasoline demand, and retail gasoline prices are still high by historical standards in the United States. Although U.S. motorists seem to change their driving habits most when gas prices near $4 a gallon, the EIA statistics show that consumption this month has been as low as or lower than any November since early in the previous decade.

Moreover, the prices of other petroleum products have been heading higher. With cold weather starting to set in, home heating oil prices stood at $3.94 per gallon as of Nov. 21, an increase of 83 cents a gallon from a year earlier, the EIA said. The higher prices will primarily affect homeowners in New England, where heating oil is still commonly used.

Diesel prices have climbed, which analysts said was a sign of improved economic activity and constraints on refiners because of the government’s low sulfur requirements. A recent Barclays Capital report said that total miles driven by U.S. truckers was up 3.5 percent over the year before.

Diesel prices Wednesday stood at $3.98 a gallon, up 13 cents from a month ago and up 80 cents from a year ago, AAA said.

Diesel prices, closely linked to the trucking business, suggest a disconnect between the economy and the glum mood of consumers.

“The sentiment indicators are gloomy, but the production indicators are pretty good,” said Adam Sieminski, chief energy economist at Deutsche Bank. “If you add up what consumers are spending, the numbers are higher than last year. If you ask them how they feel, they say ‘terrible.’ ”

Behind the retail prices of petroleum products lies a global crude market that is still roiled by geopolitical turmoil and economic uncertainty.

The benchmark West Texas Intermediate crude oil this year has averaged more than $94 a barrel, only slightly below the record year of 2008 before the recent recession, and nearly 50 percent more than levels just five years ago. The more widely used benchmark Brent crude in London has cost more than $100 a barrel since early February. On Wednesday, it fell $1.81, or 1.7 percent, to $107.22 a barrel for January delivery after pessimistic economic signs in Europe.

The Price Of Oil

Most people believe that the U.S. dollar is the currency of the world, but really it is oil. Without oil, the global economy that we have constructed simply could not function.

That is why it was so alarming when the price of oil went above $100 a barrel earlier this year for the first time since 2008. Virtually everyone agrees that if the price of oil stays high for an extended period of time it will have a highly negative impact on the world economy.

In particular, the U.S. economy is highly, highly dependent on cheap oil. This country is really spread out and we transport goods and services over vast distances. That is why the following facts are so alarming....
*The average price of a gallon of gasoline in the United States is now 75 cents higher than it was a year ago.

*In San Francisco, California, the average price of a gallon of gasoline is now $3.97.

*According to the Oil Price Information Service, U.S. drivers spent an average of $347 on gasoline during the month of February, which was 30 percent more than a year earlier.

*According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.

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