Wednesday, June 3, 2015

Why are oil prices so high, when we're burning less?

Oil is more expensive to produce; speculation is rampant; and the dollar is weak, says economist Ed Yardeni

Why are oil prices so high, when we're burning less?

"Why is the price of oil over $60 a barrel and not under $30 a barrel?" asks economist Ed Yardeni, in a letter to clients today.

"Global oil demand fell to 84.2 million barrels a day, the lowest since July 2005. It is down 2.7% year over year, the weakest in the 24-year history of the series." (Oil demand is actually down to 1995 levels in the U.S., Western Europe and Japan; China, India and the rest of the world now burn more than half of all the oil produced.)

So why aren't oil prices falling, too? 

1) "It could be that the cost of getting it has soared as all the cheap stuff has been burned." Yet production is rising in Australia, Brazil, Colombia, Oman, the UK - even the US, where natural gas production is also way up.

2) "Politicians are blaming speculators again, and threatening to impose stricter limits on their trading in the oil market. This helps to explain why the price dropped from a recent high of $72.68 on June 11." But it can't stay up forever just on speculation, if demand is falling, he adds. 

3) "It might be that the concerns about a weaker dollar are bolstering the demand for commodities, in general, and oil, in particular." 

About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

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Joseph N. DiStefano