Several Factors to consider Katelyn.
1. DOLLAR WEAKNESS
The fall in the value of the dollar against other major currencies has helped drive buying across commodities as investors view dollar assets as relatively cheap.
It has also reduced the purchasing power of OPEC's revenues and increased the purchasing power of some non-dollar consumers.
OPEC oil ministers have noted that although prices are rising to record nominal levels, inflation and the dollar have softened the impact.
Some analysts say investors have been using oil as a hedge against the weaker dollar.
2. FUNDS
Since the Federal Reserve cut U.S. interest rates in mid-August last year and central banks pumped billions of dollars into financial markets to ease a credit crunch, oil and gold have risen.
Investment flows from pension and hedge funds into commodities including oil have boomed, as has speculative trading. At the same time, the credit crunch has brought some other markets, such as the U.S. asset-backed commercial paper market, to a virtual standstill.
Some of that money has found its way into energy and commodities, analysts say.
3. DEMAND
While previous price spikes have been triggered by supply disruptions, demand from top consumers the United States and China is a main driver of the current rally.
Global demand growth has slowed after a surge in 2004 but is still rising and higher prices have so far had a limited effect on economic growth.
Analysts say the world is coping with high nominal prices because, adjusted for exchange rates and inflation, they have been until recently lower than during previous price spikes and some economies have become less energy intensive.
4. OPEC SUPPLY RESTRAINT
The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, started to reduce oil output in late 2006 to stem a fall in prices.
Fewer OPEC barrels entering the market helped propel the rally and consumer nations led by the International Energy Agency have urged OPEC to pump more oil.
At its meetings since December, OPEC has agreed to leave output unchanged, saying there is enough crude in the market. It next meets formally on September 9.
Few in the group believe there is much it can do to tame a market it says defies logic.
5. NIGERIA
Supply of crude from Nigeria, the world's eighth-largest oil exporter, has been cut since February 2006 because of militant attacks on the country's oil industry.
Oil companies and trading sources have detailed 559,000 bpd of shut Nigerian production due to militant attacks and sabotage.
6. IRAN
Oil consumers are concerned about supply disruption from Iran, the world's fourth-biggest exporter, which is locked in a dispute with the West over its nuclear program.
Western governments suspect Iran is using its civilian nuclear program as a cover to develop nuclear weapons. Iran denies this, saying it wants nuclear power to make electricity.
Interestingly enough a few months ago Goldman Sachs predicted that the average price for a barrel of crude would be $140.00 for 2008. More recently Morgan Stanley predicted that number to a $150.00 average before July 4th.
Fuel refiners and marketers have passed only some of the increase in crude prices down to consumers at the pumps. In my opinion, energy prices are not the fault of oil companies but are due to soaring crude oil markets. I do not believe that raising taxes on oil company profits is a viable solution. Higher taxes will make it harder for to compete abroad with state-owned oil companies for shrinking energy resources. Oil companies bear some of the highest tax burdens. For example, Exxon's effective tax rate is about 49 percent of revenues. The American Petroleum Institute answers complaints about windfall profits with statistics showing oil industry profits per dollar of revenue are in line with other industries, actually lagging some such as pharmaceuticals.
Quote:
Originally Posted by Katelyn
What does everyone think of the gas prices lately?
Tell me what you think.
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