Published: December 31, 2007 11:47 am            

Fear, uncertainty plus falling dollar's worth driving oil up in volatile market

Although many theories have abounded as to the exact reason gas and oil prices have skyrocketed, according to spokesperson for the Oklahoma Corporation Commission and host of the Commission's Oklahoma Energy Report, Matt Skinner.

Supply, Skinner says, is not an issue. "OPEC estimated that 50,000 barrels of oil were needed in November, 325,000 barrels were produced," he said.

"It's mostly the traders driving the prices up," Skinner said.

They tend to ignore good news, Skinner said.

"If you look at the supply numbers," Skinner said. "Supply is not an problem."

Of the supply, Skinner said, there has been no disruption, so that can safely be ruled out.

Since oil is sold worldwide by the American dollar, the price has also been driven up by the record lows the dollar has achieved versus the Euro and has even fallen below the Canadian dollar, Skinner said.

With many theories about the ever steadily rising price of oil, Skinner states that the primary reasons are "fear and uncertainty."

Chuck Mai, Vice President of Public Affairs for AAA Oklahoma agrees that "Speculation helps to drive crude prices up."

There is a silver lining, however, according to Mai, two actually — high prices encourage development of alternative fuels and Oklahoma has the lowest gas average of the 50 states at $2.80 with the national average at $2.99.

"Compared to 30 days ago," Mai said, "prices are 25 cents lower." Whereas compared to one year ago gas prices are 70 cents higher "off the highs of early November."

Crude oil makes up about 60 percent of the prices consumers pay at the pump while 30 percent goes towards refining and and marketing and the final 10 percent goes to transportation and taxes, Mai said.

Alternative fuel are ethanol which is made of corn or other natural sources (Brazil uses sugar cane) and the hydrogen fuel cell cars which, Mai says, looks very promising. This is because they are emission free and the developing battery technology is making it more affordable for consumers, Mai said.

The Organization of the Petroleum Exporting Countries reports that as of Monday Dec 17, the OPEC oil basket price was $87.97.

At the 146th (Extraordinary) Meeting of the OPEC Conference on Dec 5 in Abu Dhabi, United Arab Emirates an OPEC press release stated that "Having reviewed the oil market outlook, including the overall demand/supply projections for the year 2008, in particular the first and second quarters, the Conference observed that market fundamentals have essentially remained unchanged, with the market continuing to be well supplied and commercial crude/product stocks remaining at comfortable levels in terms of days of forward cover.

"At the same time, however, the conference observed, with concern, the world oil prices remain volatile, in major part due to the perception of market tightness by market players, exacerbated by non-fundamental factors, including the heavy influx of financial funds into commodities and speculative activity in the markets, while geopolitical developments have contributed to price volatility.

"In view of the aforementioned, the Conference decided to leave OPEC production unchanged for the time being."

        

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