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Reasons for High Oil Prices

August 17, 2012 | Comments: 0 | Views: 285

Crude is indispensable and it is a great source of energy. The prices on oil keep on altering, sometimes it is too high and sometimes it drops like anything. What might be the reasons for high oil prices? Get a sneak peek!

In the beginning of 2012, the prices on oil soared up. On February 13, 2012, WTI crude oil price climbed more than $100 a barrel. This led to increase gas prices, which raised more than $3.50 a gallon. Increasing oil and gas prices came up as a cause for concern amongst people.

The prices on oil are not only affected by supply and demand. In the year 2008, this was proven because of recession when global demand was down, but global supply was up. Therefore, the prices didn't soar up; in fact oil consumption dropped from 86.66 to 85.73 million barrel per day. At one fell swoop, supply mounted from 85.49 to 86.17 million barrel per day. The prices should have descended during that time, but increased up to 25%.

Hike in oil prices can also happen due to a decline in the dollar as numerous contracts around the world are traded in dollars. Most of the oil-exporting countries deal in dollars. Therefore, oil revenues and prices climb up, when the dollar declines. In order to uphold profit margins, OPEC (Organization of Petroleum Exporting Countries) raises oil prices. However, it keeps the prices of imported goods the same. OPEC doesn't want to trek oil prices as it favours the growth of other sources of energy. To combat the growing demand, Saudi Arabia looks forward to increasing the supply.

In 2012, the prices on oil are expected to stay around $100 a barrel right through the year, whilst the prices are driven by more rapidly economic growth in the United States. The Federal Energy Information Agency EIA forecasts around 2% hike in oil prices. However, there is only a 6% possibility that oil prices will increase more than $125 a barrel, according to the EIA predicts.

Since these days, the economy growth is better than in 2008, then why oil prices cannot climb? There are many more outlets for investment funds relating to 2008, when the global markets were very unsafe and unpredictable. In 2012, in spite of uncertainty in the Euro Zone crisis, investors have loads of options. Due to growing stock market, and minimal risks in the bond market along with other factors, investors are interested in these options.

 

Article Source: http://www.essencearticles.com/a/46601
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