Current cost increase of oil and gasoline

Middle-East crisis and investment speculation are driving-up cost.

Excerpts from the New York Times/Clifford Krauss, 2/29/12. "Tensions raise specter of gas at $5 a gallon."

American helicopter and destroyer protect oil tanker

HOUSTON — Gasoline for $5 a gallon? The possibility is hardly far-fetched.--- “If we get some kind of explosion — like an Israeli attack or some local Iranian revolutionary guard decides to take matters in his own hands and attacks a tanker — than we’d see oil prices push up 20 to 25 percent higher and another 50 cents a gallon at the pump,” said Michael C. Lynch, president of Strategic Energy and Economic Research. --- Despite a fall in gasoline demand in the United States and Europe, global oil markets are tightening because demand for energy from Asian countries, particularly China and India, is rising at surprisingly strong rates even as output is declining from several important producing countries. Gasoline futures are surging, spurred in part by recent refinery closings that may produce a shortage of motor fuel in the Northeast states by summer. 

Oil prices have surged about 8 percent since Iran threatened to cut off oil imports to France, Spain, Italy and other European countries three weeks ago as a pre-emptive move against Western moves to tighten sanctions. The European Union has decided to place an embargo on Iranian oil and ban shipping and insurance on its cargoes. Washington has decided on banking sanctions to curtail Iran’s ability to earn money from its oil exports. Middle East experts express doubts that Iran will follow through on its threats to stop supplying European customers or close the vital oil sea lanes of the Strait of Hormuz. But the saber-rattling from both sides is encouraging investors to buy oil futures contracts at higher and higher prices. Rising conjecture that Israel could launch a pre-emptive strike against Iranian nuclear facilities has heightened market jitters. 

“The bankers are speculating, protecting themselves from higher prices by committing obligations to buy now, and that starts the ball rolling toward higher prices,” said Sadad Ibrahim al-Husseini, former head of exploration and production at Saudi Aramco, the state oil company. He added that the escalating civil turmoil in Syria, a crucial ally of Iran, “is bound to increase price volatility and that will drive future speculation.” --- The Japanese Foreign Ministry signaled on Wednesday that it was close to an agreement with Washington to further reduce shipments of oil from Iran, which have already declined about 20 percent since the beginning of the year. But any success in tightening sanctions on Iran could squeeze global oil supplies, pushing up prices and causing serious economic repercussions at home and abroad. “It’s a bind for Obama,” said Mr. Kloza at the Oil Price Information Service. “How do you get tough on Iran without getting tough on American wallets?” Read the entire article.

Posted by Kathy Meeh