The Rise of Oil Prices

The Rise of Oil Prices

Name: Marisa Gabrielle De Leon

Course: Micro Economics

News Article: Supply up, demand down, but oil prices rise by San Francisco Chronicle – David R. Baker

Recession usually bring cheap oil and gasoline. But not now, and that has analysts worried that another fuel-price spike could be on the way.

Crude oil, the lifeblood of the global economy, costs $61.67, even as the world struggles through the worst recession since World War II. And prices are rising, climbing 26 percent in the last month.

The economy hasn’t, but oil traders are betting that the recession is at or near its worst, meaning a recovery could start later this year and drive up global demand for oil again.

To many economists the current high price is a bad sign.

The worldwide oil market is awash in petroleum, because countries stuck in recession don’t need as much to fuel their cars, factories, and power plants. So if oil costs this much now, when demand is low and supplies are high, what happens when the economy improves?

“We need to look no further than today’s oil prices, which have doubled since December, to see the effect speculators have on energy prices,” said Rep. Bart Stupak - Detroit, Michigan. “We are in the middle of a recession, supply is at a 20 year high, demand is at a 10 year low, yet oil prices are up 70 percent since the beginning of the year. This cannot be explained by simple supply and demand.”

In addition, Saudi Arabia and the Organization of the Petroleum Exporting Countries may try to keep oil supplies high enough to prevent a price spike, said Amy Myers, an energy researcher at Rice University’s Baker Institute.

Even after last summer’s economic meltdown ended the bull market for oil and sent gas prices tumbling, drivers kept buying less. Such weak sales should be keeping oil prices low, but traders have been gambling that the recession is finally bottomed out.

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