The rise in the price of oil in recent years involves four components:— The effects of supply and demand. Exxon Mobil senior vice president Stephen Simon testified the supply-demand equilibrium is at “somewhere around $50-55 a barrel” — about half the current price.
– The weaker dollar. Since 2001, “the dollar has lost 45% of its value” against the euro. In 2003 one gallon of gas in the U.S. cost $1.50 and 1.50 Euro. Today’s $3.60 gallon of gas costs only 2.25 Euro.
– Geopolitical risk. Since 2003, the United States has been committed to a three-trillion-dollar war in Iraq, the heart of the turbulent oil-producing world. Furthermore, the burning of oil is continuing to increase global warming, “one of the greatest national security challenges ever faced.”
– Speculation. “Investors have looked to commodities not only as a hedge against inflation but as a hedge against the tumbling greenback.
H/T Think Progres's Wonk Room.
see also Energy Information Administration
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