What's behind rising oil prices?
A weak US dollar has sent investors to oil, pushing up crude prices over the past few months. That means higher gasoline prices this Thanksgiving.
Just before the next major driving period â€“ those Thanksgiving trips to see family and friends â€“ the price of gasoline is climbing.
Behind the rise in gasoline costs â€“ up by about 18 cents a gallon in the past month â€“ is a resurgence in the price of crude. The price of oil climbed back toward its peak of more than $80 a barrel this morning before closing at near $79.
But the gyrations had little to do with fundamental supply and demand for petroleum, energy analysts say. Instead, they say, oil prices are moving in relation to the US dollar, which has been losing value all year. In this case, traders say, the weak dollar is boosting oil as a commodity that has some value.
â€śLook at the dollar, itâ€™s lost 16 percent of its value since March. Thatâ€™s the start of the rally in oil,â€ť says Mike Fitzpatrick, director of research at MF Global, a commodities broker in New York.
Some investors think the price of gold is inflated and they donâ€™t want to hold Euros so they are buying oil futures, says Mr. Fitzpatrikck. â€śSo maybe â€¦ there will be stiff competition for [oil] once the global economy recovers.â€ť
Mixed signals coming from Organization of the Petroleum Exporting Countries (OPEC) are also adding to the choppy feel of the energy market, according to Phil Flynn, director of research at Alaron Trading, a Chicago brokerage house. â€śFirst the Saudis say customers can buy as much as oil as they want, then today they say maybe not,â€ť he says.
According to the International Energy Agency, which implements energy cooperation among 24 nations, OPEC has increased oil production by about 1 million barrels of oil per day since the first quarter of the year.
Meanwhile, demand in Asia is picking up, especially in China. In September, oil demand increased 14 percent compared to year ago and preliminary data indicates October demand also increased at double digit levels, says Paul Ting of Paul Ting Energy Vision, a leading analyst of China petroleum demand.
â€śChina has mostly absorbed the increase in production from OPEC,â€ť says Mr. Ting, estimating the increased oil thirst at about 1.2 million barrels of oil per day.
Demand in the US remains relatively weak. According to the American Petroleum Institute (API), oil demand is down 4.5 percent since the start of the year. During the summer there was a small pickup in gasoline demand, but diesel and jet fuel consumption is still down, says Ron Planting, an economist at the API in Washington.
Oil prices also got a small push up as Hurricane Ida headed towards the Gulf of Mexico this week. As a precaution, the oil industry shut down 30 percent of the Gulf of Mexico production. Workers were brought ashore to wait out the storm, which weakened as it landed Tuesday morning.
â€śAssuming there was not much demand, production can be brought back pretty quickly,â€ť says Mr. Planting. How quickly depends on the level of damage, he adds.
The higher price of oil has helped to jack up the price of gasoline. According to AAA, the national price of gasoline is $2.66 per gallon.
AAA will issue its Thanksgiving travel forecast Nov. 18. But spokesman Geoff Sundstrom says he doesnâ€™t think higher prices will keep people from driving.
â€śWhile prices are rising, they are not anywhere close to the $3 a gallon or $4 a gallon price level we saw during the summer of 2008,â€ť he says. â€śPlus, the airlines have been gradually raising prices as we get closer to the holidays, so that weighs on the decision to fly or drive. Unless itâ€™s a really long trip, itâ€™s still cheaper to drive,â€ť says Mr. Sundstrom.
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