Tuesday, April 12, 2011

Oil Prices and what is going on in America

Oil prices are running around 105 dollars per barrel.Brent crude is 15 dollars more than that .traditionally Brent used to be 2 dollars a barrel cheaper .It means that for the first time in many years Crude oil is cheaper in USA (Texas Crude)THAN IN Europe. What are the reasons for it.America has been reducing use of Crude Oil.We use 20 percent less gas and diesel as the efficiency of our vehicles have been improving and will improve further as the older cars are replaced by more efficient vehicles.

On the other hand India, China and other developing countries are buying cars for the first time and demanding fuel for it and in the process raising prices and demand for the fuel. America has also stopped using Oil for power generation.Natural gas production has improved by using new techniques of fracturing and new more efficient power plants using natural gas have come on line reducing the need of crude oil derivatives.

IT seems that we do not import any middle east oil other than to fulfil any legal obligations.Other thing has happened that gasoline has been mixed with 10 percent ethanol and in the process also reducing need of Crude oil.It has had the effect of increasing cost of corn and food products in the process.That is a different matter at all.

US today buys Majority of crude from Canada,Mexico,Venezuela.Brazil and some from Nigeria and Saudi Arabia.Shares of oil from other continents has been reducing. Because of economic down turn our energy use have also shrunk. The price of gasoline has been going up because of tight refining capacity for fuel.Some of that is made up at a very high cost from imported fuel from refineries of middle east.

Finally the cost of crude oil has been going up because excessive trading in oil by speculators on Marginal shortage of Oil production in the market place.This is trading in speculation not in commodity.President should order to release oil equal to short term loss of production because of war or other reasons to the market.This will end the speculation and make up any shortages in the supply.Govt can release oil till the prices fall back to 90 dollars a barrel and when it goes down they can refill it.

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