In his "Semiannual Monetary Policy Report to the Congress" before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, last week, chairman of the Federal Reserve Ben Bernanke explained why oil prices are so high and are likely to stay that way for the foreseeable future:
The spot price of West Texas intermediate crude oil soared about 60 percent in 2007 and, thus far this year, has climbed an additional 50 percent or so. The price of oil currently stands at about five times its level toward the beginning of this decade. Our best judgment is that this surge in prices has been driven predominantly by strong growth in underlying demand and tight supply conditions in global oil markets. Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil. Moreover, growth has been concentrated in developing and emerging market economies, where energy consumption has been further stimulated by rapid industrialization and by government subsidies that hold down the price of energy faced by ultimate users ...
On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.
Much of the subdued supply response reflects inadequate investment and production shortfalls in politically volatile regions where large portions of the world's oil reserves are located. Additionally, many governments have been tightening their control over oil resources, impeding foreign investment and hindering efforts to boost capacity and production. Finally, sustainable rates of production in some of the more secure and accessible oil fields, such as those in the North Sea, have been declining. In view of these factors, estimates of long-term oil supplies have been marked down in recent months. Long-dated oil futures prices have risen along with spot prices, suggesting that market participants also see oil supply conditions remaining tight for years to come ...
The decline in the foreign exchange value of the dollar has also contributed somewhat to the increase in oil prices. The precise size of this effect is difficult to ascertain, as the causal relationships between oil prices and the dollar are complex and run in both directions. However, the price of oil has risen significantly in terms of all major currencies, suggesting that factors other than the dollar, notably shifts in the underlying global demand for and supply of oil, have been the principal drivers of the increase in prices ...
Another concern that has been raised is that financial speculation has added markedly to upward pressures on oil prices. Certainly, investor interest in oil and other commodities has increased substantially of late. However, if financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year. This is not to say that useful steps could not be taken to improve the transparency and functioning of futures markets, only that such steps are unlikely to substantially affect the prices of oil or other commodities in the longer term.
This isn't some short-term speculation-driven problem. It is long-term fundamentals. Americans need to brace themselves for tight oil markets years to come.
This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.
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Comments
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GonzoDon Posted 9:22 am
22 Jul 2008
In other words, all the things that the Republicans have been promoting during their long reign of power.
Oh. Wait a minute. You mean they haven't been promoting those things? But -- but -- Bernanke says -- hmmm.
Does that mean Bernanke is actually laying the blame at the feet of the Repubicans and their Democratic enablers?
Can't be. I guess what he's really saying, as McCain did, that this is all Obama's fault. Clearly.
Man, I am so confused.
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Russ Posted 6:06 pm
22 Jul 2008
You see how even when an establishment figure acknowledges that it is fundamentals driving price, he still fraudulently emphasizes above-ground factors - "inadequate investment", and those nasty public governments ("Why can't we just get rid of them?", he sighs wistfully to himself) "impeding" and "hindering" the multinational oil corporations.
This is still pushing the neocon master plan - that the US needs to pry open nationalized oil resources for private development, which will magically send production up and away, which would send prices plummeting, which would then force the Saudis to start pumping 15, 20, 25 mpd just to maintain their revenues, and the global economy would then be awash in oil in perpetuity, and "growth" would go on forever.
This is the mythology which brought us the Iraq war.
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amazingdrx Posted 6:31 pm
22 Jul 2008
They don't need no steenkeen market re-regulation, just untouchable "retirement" accounts in Dubai.
A note to bush voters, next time vote for a human. But remember this non-GOPers, the fed chairman, like the supremes, serves long after the simian moves back to crawdad. We are still screwed on those fronts for years to come.
Lists of bush voters ought to be prepared ahead of time so everyone who loses their jobs and homes in recession, and loved ones in oil wars can properly thank as many bush voters as possible in their local area. Credit for this disaster needs to be properly distributed.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 8:49 pm
22 Jul 2008
Only annoying pranks like sending multiple pizza deliveries to their homes could provide any satisfaction.
With this in mind re-examine a poem featured on the "Poetry Corner" segment of the "Bullwinkle Show", featuring Boris Badenov as the "little man".
(Paraphrase of a sacrine traditional poem)
#1 How to be happy
Are you almost disgusted with life, little man?
I'll tell you a wonderful trick
that will bring you contentment, if anything can
Do something to somebody, quick!
Are you awfully tired with play, little girl?
Wearied, discouraged, and sick-
I'll tell you the loveliest game in the world,
Do something to somebody quick!
Though it rains like the rain of the flood, little man
and the clouds are forbidding and thick,
You can make the sun shine in your soul, little man
Do something to somebody, quick!
Though the stars are like brass overhead, little girl,
and the walks like a well-heated brick
and our earthly affairs in a terrible whirl,
Do something to somebody, quick!
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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