I had an exchange with someone on a different blog concerning fuel prices. The initial post was headlined "Want Cheaper Oil? End the War" The second commenter blamed the high price on "the greedy oil companies". I commented that I thought it was a demand issue, that the oil companies are no more greedy than any other companies.

What they have, in addition to a healthy dose of self-interest (greed, if you must), is an extremely favorable position in the market; they control supply, and there are really no rules on how much they produce. They can under-produce if they want, they can overproduce if they want and they don't ever have to sell. They can charge whatever they decide to. And not only will people still buy it, most of them will continue to buy just as much as always, (but complain a lot more).

Here's today's story from BBC, I'll add a couple comments at the end:


Oil soars to new record over $135
The price of oil hit a record high above $135 a barrel on Thursday - more than twice what it cost a year ago.

The latest surge was driven by data showing that US supplies of crude had fallen - but the price later fell back sharply as traders took profits.

In the US, the benchmark light, sweet crude contract hit $135.09, taking its gain for the year to more than 40%. In May 2007 it was priced at about $65.

Higher oil prices push up the price of fuel, energy bills and food.

The average price of a litre of unleaded petrol in the UK is now about 114 pence, and diesel has risen to an average of about 126.4 pence per litre.

And the motoring organisation, the AA, said that another $5 leap in the oil price could add a further 2.5p to the price at the pump.

"The threat of even higher prices in the pipeline will perch like a vulture above UK forecourts waiting to pick an even bigger hole in the pocket of drivers and consumers," AA president Edmund King said.

'Challenging'

The impact of rocketing oil prices continues to feed through into the wider economy.

The British Chamber of Commerce warned that companies were being pushed to the "absolute edge", and called on Chancellor Alistair Darling to abandon plans to increase petrol duty by 2p in October

Meanwhile American Airlines has become the first US carrier to charge for checked-in luggage as it tries to increase revenue being eroded by its fuel bills. It will also cut "thousands" of jobs.

Air France-KLM said on Thursday that the cost of oil would make the coming year "challenging".

And earlier this month, British Gas owner Centrica signalled that bills could rise again, as its profits are squeezed by higher gas and power prices.

Investment needed

In a more global economy, there's going to be tougher competition for oil supplies
Stephanie Flanders
BBC Economics Editor


UK Prime Minister Gordon Brown is working with international partners to persuade the Opec oil producers' cartel to increase supply.

His spokeswoman said that Mr Brown recognised the increases were having an effect on UK consumers and he would be raising this at the forthcoming EU and G8 summits.

But one analyst said Mr Brown's efforts were likely to prove in vain and political pressure should, instead, be exerted on leading producers to invest more in long-term capacity.

"All this excess profit that has been generated by the oil industry really needs to be invested in refineries, pipelines and oil wells," Francisco Blanch, head of global commodities research at Merrill Lynch, told the BBC.

HAVE YOUR SAY This has hit me hard financially as I have to use my car for work Kevin, Gloucester

"This is what the market is asking for at the moment and we just need to ensure... we have the political goodwill also supporting this investment."

Opec has so far blamed price rises on speculators and says there is no shortage of oil.

All but three of Opec's members are already at their maximum daily limits for oil output and pressure has grown on Saudi Arabia, Kuwait and the UAE, which do have spare capacity.

Further rises?

Some analysts have raised the possibility of prices rising as high as $200 a barrel during the next 18 months.

In addition to falling US stockpiles, the continuing weakness of the US dollar has been another factor cited as supporting prices.

The US Energy Information Administration blamed the fall in its stocks figure on a fall in imports and a pick-up in demand from refineries.

Oil prices have set new records in 10 of the last 14 trading sessions.




"You really cannot forecast how much further the market will rally now," said Tatsuo Kageyama from Kanetsu Asset Management in Tokyo.

"All I can say is the market will continue to rise."

Light, sweet crude oil is the type most commonly used for processing into petrol and as a result, it is in high demand.

It has large amounts of the content used to make petrol, top-grade diesel and kerosene. It also has low levels of sulphur.

Its price pulled back sharply as dealers took profits from the surge, settling down $2.36 at $130.81 a barrel

London's Brent crude fell $2.30 to $130.40, having set an intra-day high on Thursday, peaking at $135.14 a barrel.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7414093.stm

Published: 2008/05/22 21:46:11 GMT

© BBC MMVIII