WHY ARE GAS PRICES HIGH AND RISING?

Posted by
Lynne Being systematic, here are the primary reasons for the rise in gasoline prices in March 2008:
1. High world crude oil prices. These prices are partly the consequence of conscious OPEC supply constriction to raise price. OPEC?s ability to do so is typically constrained by three interrelated factors: the world demand for oil, cheating on the part of smaller OPEC members, and production from non-OPEC countries like Russia, Norway and Mexico. Economic growth, particularly in Asia, is shifting out the demand for oil according to this Ft. Worth Star-Telegram article:
Strong demand for oil in Asia is one reason for higher crude prices in recent months, although analysts also said that aggressive bets by large commodity speculators have contributed to the recent run-up in oil markets. Much of the attention on Asian oil supplies is related to the fast-growing economies of China and India.
Sales of diesel fuel in India, which account for about 40 percent of the oil sold in that country, soared 10 percent in February from the same month a year earlier; automobile sales in India grew 31 percent in the last year. India's oil imports are forecast to continue to climb as its economy grows 8 percent this year.
This Investor?s Business Daily article points to the other two aspects of this dynamic: Saudi Arabia is still the ?swing producer? because of the scale of its reserves relative to other producers, and some OPEC members have not curtailed production to meet the targets OPEC set in their 1 February meeting. Saudi Arabia?s production is the primary determininant of the world price, and with rising demand the growth in production in Russia and in Iraq has not been sufficient to change that fact. And small OPEC producers are riding the crest of this high price, not restricting their output.
No current discussion of OPEC is complete without reference to the horrendous state of affairs in Venezuela. Their low production adds substantially to the high prices we are currently experiencing.
OPEC is currently discussing whether or not to continue its output restrictions at the end of the month, and today?s news suggests that they are fighting internal battles over whether to pursue output restrictions when their benchmark price is $4 above the high end of their usual benchmark range.