Recent
actions in the Persian Gulf show once again
how susceptible oil prices are to geo-political
factors, as the price of oil rose to over
$65.00 per barrel this week, in large part
over market jitters related to the capture
of British sailors by the Iranian Government.
As we reported in Supply Chain Digest,
2006 was a hugely unpredictable year for
energy related prices, as the price for
a barrel of oil rockets to nearly $80 a
barrel in late summer, causing roughly proportionate
increases in diesel fuel, and significant
increases in raw materials and components
with a heavy oil content (see Transportation
Management: Diesel Prices Had a Roller Coaster
Year in 2006)
However, prices moderated substantially
by the end of the year, so that the price
of oil was roughly where it started at the
beginning of 2006. In fact, oil industry
expert Philip Verleger expected prices to
tumble much further, saying last September
prices could go as low as $15-20.00 per
barrel, and to $1.15 per gallon at the retail
pump. (See $1.15
a Gallon? Leading Oil Industry Analyst Says
Prices Could Plummet.)
It hasn't worked out that way, as many
forces have driven prices back up. What's
key to understand is that it is often not
pure supply and demand that drives prices,
but the so-called "futures" market.
Many observers believe there is about a
$15.00 per barrel premium right now driven
by the futures market, which reacts instantly
to geo-political and many other factors,
versus what the market price would be based
purely on supply and demand. |