Why Is Gas So Expensive?

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Gas prices hit the $4-per-gallon mark in Southern California and Chicago this weekend, and the national average price for a gallon regular unleaded breached the $3.50 mark, according to AAA.

Prices for 2011 were already supposed to be some of the highest ever, but because of unrest caused by uprisings in Middle East countries — especially Libya — speculative trading may send oil prices soaring past even the most pessimistic expectations.

“This definitely makes me worry about my prediction,” said Oil Price Information Service analyst Tom Kloza, who predicted a month ago that prices would top out between $3.25 and $3.75. “We always overreact, but this is a doubleheader. The first game is the reaction; the second game is overreaction. It’s hard to say what inning we’re in right now.”

Kloza said the price spike has virtually nothing to do with the supply of oil and everything to do with the perception of the crisis in the Middle East. The spike is a direct consequence of growth in electronic trading of oil futures and options and the fear of those traders manifesting itself in this electronic space.

The disruption of oil coming from Libya has been largely overblown because Libyan oil is light, sweet crude. This means it has a low sulfur content and is easily refined in unsophisticated refineries in the Mediteranean. The oil replacing it has more sulfur and has created a minor logjam. “If this stops with Libya, then all this is blown out of proportion,” Kloza said.

However, the elephant in the room is Saudi Arabia, the world’s largest oil producer with its deeply repressive, undemocratic government and slow-boiling societal tensions. Facebook groups have cropped up, promising protests this week and calling for a “day of rage.” In response, the Saudi government has banned protests and drafted more troops to enforce it.

Kloza is nothing but grim about what would happen if the government fell and the flow of Saudi oil became disrupted. “It is a true, absolute nightmare scenario,” he said. “It’s a complete abstraction to say what the price of fuel would be. It’s a silly intellectual exercise to even speculate. But I’d have to guess somewhere between $5 and $10 a gallon. Certainly in the spring, you’ll be at an advantage if you have a vehicle that gets pretty good mileage.”

By Stephen Markley | March 7, 2011 | Comments (23)
Tags: In The News

Comments 

JM

no, oil is so expensive because the liberals won't let us drill for our own despite the fact that we have so much in Alaska and the Gulf.

Charlie Peters

Corn fuel ethanol stinks, get food out of my gas.

Corporate welfare for Big oil and Government Motors.

FlanKitty

price of crude is more the result of daytraders in CRIMEX (cough, COMEX) using instability in middle east and north africa as a crutch to get it (cost) fluctuating (which equals profit either way).

it doesn't help when saudi arabia is going dry slowly due to the practice of injecting sea water into wells to force production.

either way, issues of crude supply and resulting demand have been decades in the making, and won't go away until there is a global plan to reduce dependence on petrol chemical products.

Idaho Guy

JM, the meager output of American wells wouldn't put a dent in the price of fuel. It's a global commodity, global scam.

America needs to get OFF petroleum for fuel, the sooner the better. Not likely to happen, though, because we are owned by the corporations.

Amuro Ray

@ JM,

Being one of the top oil producers, in ranking, US supplies can satisfy less than 40% of our demand.

You also have to build more refineries too!

Even if we drill drill drill, our demand is still FAR greater than our supply.

Worst of all, it won't cause any change to oil prices 'coz it's a global commodity, as Idaho Guy has said (and if you know economics, you should know that!). The only reason why the Middle East and Venezuela - as well as the US too - are enjoying low gasoline price at the pump is due to government regulation/subsidies.

Getting off petroleum, changing our buying AND driving habits are the only action we can do to minimize high gas prices.

No body has the answer my friends - TRUST ME !

Paul R.

Obama is owned by the environmental lobbyists so get used to $4 a gallon being the new standard by this Fall. This is what you get when this administration believes US consumers don't pay enough in gas taxes.
I'm an options trader and make a very good living but feel bad for the unemployed masses as this administration is just like the previous one. No clue, no concern, all talk, no results.

George

Oil has to be expensive, so that OPEC states will have enough money to purchase US debt.

If we developed our own huge oil resources, the price of oil would plummet, and then there would be no purchasers of US debt.

The US won't be oil independent until the federal reserve note fails.

Dan

@George:

Your theory is not founded in fact. Oil exporting states hold less than 2% of our national debt.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

Since most

Stinking Cheese

Ride a bike you fat lazy white americans, please stop polltuing though

mt

So Nigers are you saying that we should cancel all out of state or city vacations. If I want to drive across country I'm doing It these gas Nigers are not to stop me nor the Niger government of the US.

Anonymous

Today gas prices hit $3.8 / gallon.

Its high time, we open all areas for drilling. Let see how much oil is really there, if it can meet the demand, we are good, otherwise, we better find the alternative instead of just blaming on each other.

Z

The answer, fellow knights, is electric cars, charged by solar power plants! Huzzah!

Deadzone

The oil co. Just testing to see how much Americans will pay before freaking out
Once the price gets way up then they drop a few pennies and we are happy but the price really just keeps going up.now gas is 4.15 a gal watch they will drop it to 3.90 a gal an we will think we are getting a good deal Americans need to wake up it's all about the money

workinman

Stop buying the stuff and the price will go down! Stop blaming the government, they have no control over oil prices except to regulate the commodities market. If the oil companies started drilling Malibu beach today they would increase the world supply of oil by about 2 percent ten years from now. The real reason for high prices is the greedy bastards on wall street who paper trade millions of gallons of gas and sell it to each other at ever increasing prices. If you want to stop that return to 1970's commodity trading laws that said if you buy a million gallons of oil you have to take delivery on it. Otherwise if you don't like the price, get a new ford or toyota that gets 40 mpg and buy less gas. If we all do that the oil bubble will collapse. Then the oil traders will get stuck just like the poor fools who paid half a million dollars for a tract house that cost fifty thousand to build.

jaykay

I don't want to depress you guys but here in Finland gas is around 1.6€ / litre. It is pretty much the same price in everywhere in Europe. That comes to around 10$ /gallon.

They pay around a 1€/litre in India and they are very poor and have relations to some very poor oil producing countries. Like Iran for example.

In reality it seems gas price is around 1-2€/litre pretty much everywhere if not subsidized. Meaning socialized gasoline. Government pays most. Which I guess is in use in US.

So with the debt the US government is in the gas price is probably going to rice to at least 10$/gallon within a decade. Except if the economy (and population) continues to grow in poor over populated nations. Then us westerners who have gotten used to easy life will have to realize the realities in our planet. Where most are extremely poor.

Ethanol is actually better choice if people don't like the smell of recycled corn oil but people can also use hydrogen cells. I have a book that shows you how to make all three at home and it's only 99 cents

Bjorn

lets all argue in circles and come up with nothing!

because

The reason gas is going up is simple because the oil companys and wall street know we can do NOTHING about it. It is that simple. sure they give reasons, EXCUSES, but it just comes down to profits and well more profits. We put men on the moon but yet we can not develop the resources to produce inexpensive gasoline. The federal government needs to prevent product that comes into our country from being resold to foreign countries at a greater profit. If the oil companies want to sell the refined oil to other countries, then place an export tax on the product so that the gas will be kept here and not exported to other countries. When are we going to start looking out for the people of this great country. All of the progress that is, or may, or might have been made by now getting out of the "RECESSION" is just going to be lost to the profit takers on wall street and a government who just does not REALLY care about the true average working american in this country. What has happened in the last week to have gas increase by 60 cents a gallon? Guess we moved a few ships around in the gulf and pissed off Iran, or was it that it is costing more to refine what is called the "Summer blend" of gasoline? I guess we all might as well just shut up keep voting the same old politicians back into office and get ready for the same old reasons as to why we are in the trouble we are in. It is all our own fault we did it to ourselves there is not a thing we can do about it. The funny thing is the government thinks things are getting better. What a joke.

joe

I bet if someone has another lawsuit like the gulf of mexico, then gas prices will go up again to cover the lawsuit. Shocker!!

ttpennyfeather

@payout
go to hell

Rey Maranan

All lies!! Why is is it so expensive rt. now in Illinois?

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