OPEC controls only half of the world's supply of oil. So if prices are skyrocketing over there, then theoretically, the world's non-cartel suppliers should step up to fill the void. But this isn't happening. Why? Who's to blame?
The average consumer will blame Big Oil immediately. I can't tell you how many times I've heard, "Big Oil is getting tax breaks while they post record profits for 1Q 2008? I'm going to boycott them by not filling up for an entire day at ________ (enter most hated gas station here.)" The fact is, that's just stupid thinking.
Yes, Big Oil is rolling in the profits. Yes, they're getting more tax breaks (with the initial intent to actually promote exploration and alternative energy sources, which isn't immediately realized by the average American consumer.) However, profit margins for Big Oil are only slightly higher than the average for the S&P 500. These companies are pumping back their profits in the way of dividends, capital spending, employment, etc. They're worthy of getting a hit or two from us, but unfortunately, they aren't entirely to blame.
Speculators seem to be the highest source for media and consumer-driven panic right now. Did you know that the first day of trading 2008, some jackass on Wall Street decided - hey, I'm going to go down in the books as being the first person to close trading on a barrel of oil at $100+? That said, ultimately, the traders get burned faster than the consumers.
As I mentioned before, OPEC only controls 50% of the supply in the world. When oil prices go up, other countries with oil supply (England, Norway, Russia, Canada, etc.) open up to take advantage of these high prices. This, economically, should decrease price. But disruptions in supply in all of those countries (by as much as 65%) makes me think that maybe speculators have a reason to . . . well, panic.
Basic economics says that China and India might have something to do with skyrocketing prices. After all, as the middle class grows in these countries, they buy cars. Cars require fuel. Demand sharply increases, supply remains the same (or goes down), and market equilibrium shoots way, way up. That said, China and India's demand for oil is steady. It doesn't explain why, in 2004, we were paying $1.20 for a gallon of gas, and 4 years later we're paying $4.00. The increase in demand and price surge doesn't correlate.
The falling of the value of the dollar is a legitimate potential reason. Oil is priced in USD. Interest rates have been low in recent years, so of course the value of the dollar is low. When the value of the dollar is low, it takes more on our part to buy high-priced oil. We should be more concerned about the credit/mortgage crisis than the oil crisis, because once that's resolved, I anticipate some alleviation to the crunch our budgets are feeling right now.
So, my general conclusion: blame it on the rain. Yeah, yeah.
-10-key princess