beerworkers.org

Oil costs are soaring and gas prices are approaching amounts not seen since the summer of 2008. The U.S. has huge oil and gasoline stockpiles, but speculators betting on risk and fear have pushed oil prices up 21 percent in 2011. Some analysts think the oil rally is about to end, however, as increasing oil and gas prices reduce consumer demand.

Still oil rally

The sweet crude for May delivery went up to its highest levels since September 2008 on the New York Mercantile Exchange. It went up to $111.90 a barrel. The highest level since 2008's summer was also reached in United States gas prices which averaged $3.70 this week. Analysts credited numerous factors to the oil price surge. A looming government shutdown is weakening the dollar, which makes dollar-based commodities such as crude oil more affordable for traders betting with other currencies. Since Libya is now producing hardly any of the original 1.3 million barrels a day, many are worried since it doesn't seem like the Libya conflict is ending anytime soon. Every single day it seems increasingly more consumers are willing to pay the additional few cents for gas. The United States is awash in oil due to this. According to the United States Energy Information Administration, U.S. oil inventories rose by 2 million barrels in the week ending April 1. Crude refinery input rose to more than 14 million barrels per day.

The supply and demand issue

The United States used to blame OPEC for its oil shocks, but OPEC's role in increased oil prices has been diminished. The United Arab Emirates oil minister said the costs aren't controlled by the OPEC at an oil conference. OPEC gives enough oil to the industry according to Mohammed bin Dhaen al-Hamli. The only reason for oil costs increasing is because of traders. They are betting on a worst case scenario rather than paying attention to the facts. Oil speculators are being aided and abetted by the Federal Reserve, which has been giving hedge funds and pension funds money at zero percent interest so they can bet on increasing commodity prices. Analysts estimate that because of speculators, oil futures are $15 to $20 higher than they should be. The next betting madness could possibly be triggered by elections this weekend in Nigeria, where output of 2.2 million barrels a day might be disrupted by violence.

Oil tipping point

There are signs that gas and oil costs have risen to a level that United States customers can no longer afford. Demand for gas has gone down. In the last four weeks the drop was 3.7 percent. There is a tipping point that could soon be reached for gas and oil costs. This is unless another problem such as a war in Nigeria or in the Middle East occurs. Oil was around $90 a barrel until the second quantitative easing plan (QE2) started to fail the Fed had in place. Crude oil may go down to $85 to $95 a barrel in June when gas and oil speculators change their minds.

Information from

Wall Street Journal

online.wsj.com/article/BT-CO-20110408-707562.html

New York Times

nytimes.com/2011/04/09/business/09markets.html?partner=rss&emc=rss

Industrial Fuels and Power

ifandp.com/article/0010617.html

Fortune

finance.fortune.cnn.com/2011/04/08/oil-at-the-tipping-point/