The Bush administration will temporarily halt oil shipments into the US Strategic Petroleum Reserve(SPR) for the rest of this year, the Energy Department announced Friday. The announcement came 3 days after Congress voted overwhelmingly in favor of suspending the purchases to ease the upward pressure on oil prices.The decision coincided with Saudi Arabia's announcement of an increase in production by 300,000 bpd. On Tuesday the US house had voted overwhelmingly to suspend shipments of about 70,000 bpd to the SPR, which is already 97% full, holding 701 million barrels of crude. The vote was 385 to 25 with 23 members not voting. The Senate had voted 97 to 1 on a similar measure.President Bush has opposed the idea all along as he says the amount of oil being shipped to the SPR is a tiny fraction of US consumption of about 21 mbpd, and has no effect on prices. Nevertheless he is expected to sign the bill. The near unanimous vote reflects the importance of the issue of high oil prices in an election year to Democrats and Republicans alike. It is expected that this may lead to a fall in gasoline prices from anywhere between 5 cents to 25 cents a gallon. President Bush has also gone to Saudi Arabia in an attempt to persuade OPEC members to increase output to help bring down oil prices.
Contrary to the expected price drop, oil traders cheered the announcement by increasing oil prices to a record $127.82 a barrel Friday. The price finally settled at $126.13 per barrel at close of trade. Looks like President Bush was right about this one after all.
If the oil market is apparently defying the principles of supply and demand then what is it that is determining global oil prices presently?The combined production of the 13 OPEC member countries was 31.8 mbpd in April,according to the OECD energy watchdog, the International Energy Agency. Global oil demand for 2008 is expected to average 86.8 mbpd, about 1.2% higher than in 2007. OPEC produces 37% of this oil. Production by non OPEC members is about 63% of global output. OPEC says it has no control over world oil prices. It blames rising demand, tight supplies and the weakness in the US dollar for the high prices.The Saudis are believed to have only about 2 mbpd of spare capacity available with them. They feel that they are in no position to influence world oil prices, and are therefore reluctant to act.
The question is that if OPEC does not control the oil market then who does? F. William Engdahl offers an interesting explanation for it. He says the price of crude oil today is not made up according to any traditional relation of supply to demand.It's controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myth of Peak Oil. It has to do with control of oil and its price.
Maybe his theory deserves a closer look.