Wednesday, June 18, 2008

Why Oil Prices Are This High

We know about the speculation in oil prices (there is some). And we know about the fundamentals of oil prices. We know that oil supply is flat. We know that oil demand is strong and rising. The question that everyone seems to be asking is why is demand so strong? US demand is dropping. The environmental movement has made people more conscious of their carbon footprint throughout the world. As an aside, when I see that Al Gore's house has increased its electricity use 10% in the past year, I just shake my head.

Anyway, check out this post at the blog Naked Capitalism, which displays a Morgan Stanley report on oil price subsidies throughout the world. We know that oil producing countries subsidize oil for its people, but China? There is our culprit. They have one of the strongest growing economies in the world, and they are subsidizing oil. This is promoting people to care less about using more oil because its cheap. Lets face it, if our government subsidized gas at say, $2.00 per gallon, there would little talk of oil prices, even if they were $130/barrel. Bottom line is, because of subsidies, China is probably using more oil than they need, and thus making prices higher for the rest of the world.

There are solutions out there, but our politicians seems more interested in fighting with each other about drilling than seeking long term solutions.

By the way, I found the info on the blog Naked Capitalism, via the WSJ Environmental Capital Blog, which is have linked in my blogroll. For lots of great information about oil and alternative energy, keep an eye on this blog, its great.

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