With oil in oversupply--why the high prices? on clarkhoward.com

CLARKONOMICS: You've probably noticed the price of oil steadily climbing recently. The latest trade price of a barrel of oil was $61--double what it went for just three months ago. This is in spite of the fact that there's a massive two-month supply of oil available right now. It may even reach a point where there are no more oil tankers left to store this unprecedented amount of surplus oil! So how could prices be going up? What happened to the classic rule of Supply and Demand?

When you look long term, oil prices generally do follow the law of Supply and Demand. But short term, it's human nature to fall victim to inertia. This means we tend to assume that whatever direction a market is going, it will continue to follow that trend, regardless of the facts. (We see this in the stock market--when things are booming, everyone starts to buy in even though the peak may have already happened by then, and vice versa.)

Clark thinks this is a "false rise" in the price of oil because there's a lot of money available that investors aren't sure what to do with. With "safer" investments like Money Market funds earning almost no interest these days, investors are turning to stocks and commodities, such as oil. When oil was at its lowest, many investors started buying in, assuming oil price would continue to rise. This demand feeds the prices higher. But the herd mentality that's pushed the price up is just a temporary situation. When will the prices equalize to more realistic levels? Clark goes out on a limb to predict that oil prices will start to fall right after the July 4th holiday.

(Last year at this time Clark was one of the few to predict that the $4 gas prices would go down to the mid-$2 range, going against all prevailing opinions at the time. Will he be on the mark for a second year in a row?)

What others are saying

Gasoline glut!
The price of gas seems to be controlled by the refineries. They are all owned by a few BIG BOYS. The price of gasoline is up because we have fewer refineries to convert OIL into gasoline!
By Danny H @ 08/01/09 01:21:20 PMreport abuse
Gasoline Prices
This all still doesn't explain the apparent price fixing by the various companies and the lack of price competition that used to be common several years ago!
By Dan @ 06/25/09 09:10:36 AMreport abuse
Oil vs gas prices
Ted has it right on - and Clark is right about supply and demand in general but he is wrong in that it is the supply of REFINED product that is at issue. There IS NO FREE MARKET in the motor fuel business. Too few refiners in too few places equal a situation where, because the government says 'you must sell oxygenated fuel in the summer', the refiners wait until there is a shortage to produce enough gas. Guess what - THEY know the demand will go up starting about Memorial Day. They have every incentive to wait because they KNOW no one else is capable of stepping in and supplying the market. They wait to make oxygenated gas: the price goes up: they make more money than they would have otherwise. Same thing in reverse in the fall. Wait to make UNoxygenated gas, the price goes up = more profit. That is management's job - to maximize profits. The only way to fix it is to make sure there are enough refineries in enough areas of the country to supply the demand when other refiners get too greedy. It is unlikely this will happen anytime soon since too few 'big oil' companies control the too few refiners. It seems the breakup of Standard Oil in the 30's has been forgotten. What say you Clark?
By BRTKelso @ 05/29/09 06:18:02 PMreport abuse
Chicken or Egg Tastes the Same to Me
So, the Liberals scared us, and therefore the oil speculators are hoarding, causing the price to rise?

Or, the speculators are hoarding, causing the populace to prod the Liberals into scaring us, causing the price to rise?

Chicken and egg taste the same when they come out the other end! I can't help thinking about how fast the price of oil rose *right*after* the 2008 stimulus checks started hitting the mailboxes, and how fast it dropped when "mad money" dried up.

I don't buy the free market idea anyway. What with governmental and non-governmental powers' constant interference on both the left and the right, the free market concept is just an outdated story told to young children to bore them to sleep.

The free market smells like those chickens and eggs coming out the back side! But it makes a damn fine story, eh?
By Cecil Nixxon @ 05/29/09 12:52:24 PMreport abuse
I'm sorry I can't do that, Dave.
Actually, Dave, I run my own business, have employees to pay, pay corporate taxes, fixed expenses, costs of goods, and if anything is left over, get paid, myself. I'll bet you don't even know what most of that means. Unfortunately, many people, like you, are conned into thinking government is the answer for everything. I hope Obama doesn't tell you how much you can earn next year because it is all in the name of "fairness". Stop drinking the liberal koolade, Dave, before it's too late!!
By Eric @ 05/27/09 04:54:57 PMreport abuse
Gas Prices
Clark, Obama proposal to change our Transportation in the yr 2016 is the reason for this onslaught of price gauging, we will not see a decrease because of greed and fear (lost of their control) seven years from now. "What a shame" the Politicians don't mind watching working class people struggle to take care of their families, they must don't know the word "Budget, Fixed Income, and Low Income".
By Not Needed @ 05/27/09 09:39:45 AMreport abuse
Oil consumption
I see people every day who dep[end so heavily on a motor vehicle to do every thing. They spend every day literally running to taverns, restaurants, shopping centers, and all manner of other places. They have no sense of priorities. They never stay home, never get themselves out of debt and can never grow up and settle down. The worst of it is in the midwestern states. The demand for gasoline is highest here. Nearly every other vehicle on the road is a four wheel drive truck or a sport utility vehicle.

People take out second mortgages on their houses to finance frivolities like these. I use a bicycle most of the time now. I use a back pack and can make multiple trips to the store if necessary. My health and state of mind are improving and the quality of my life is improving.

In the mid west, conservation is a meaningless word. People are whiners and spoiled rotten. They can't conserve anything no matter what it is if their very lives depend on it.

If the majority would get off their fat rear ends and get some ambition and start weaning themselves away from running around every day all day long just so they can brag about what they have that someone else doesn't, they ,might see the price of oil come down.

Less than half of the consumption is for necessity.

Where I live, traffic flow studies reveal that about 85% of traffic every day is accounted for by people running between shopping centers, taverns and resturaunts. "Frivolous fools."
By Jerry @ 05/27/09 02:55:44 AMreport abuse
Eric wins the prize
I thought i saw plenty of moronic posts on Clarks boards, but I think Eric just earned the prize for being the biggest dope.....he says he hates whiners, but whines very loudly . Yes Eric free market changes prices but oil and gas are sortta like food, if the price goes up you cant stop eating (or move to Venezuela) It affects every business that transports goods or has materials shipped to them, it affects every person that can't jump on a bus to go to work...it hurts the whole economy and if it's skewed because of speculators instead of supply and demand then Government needs to step in and fix the problem...because morons like you who shout comrade and whine about poor people getting breaks won't get it fixed in a million years....matter a fact I bet you don't even have a job, I bet you just sit around all day posting moronic blather on comment boards like this. I guess you can be proud, because it will take a giant ignoramous to top your post.
By Dave @ 05/26/09 02:29:44 PMreport abuse
Oil Costs
WAAAAAAA

All you big pansies out there whining about oil and gas prices. Why don't you just stop driving? This is a free market for now and prices change with supply/demand/speculation. Why don't you move to Venezuela? When Comrade Obama gets through, you can bet the "poor" get a price break on gas but not the average Joe. I agree with Ted the price of gas is affected with all of these different blends required by different cities. Have you seen the price of diesel lately? It is now CHEAPER than gasoline, but is refined from the very same oil. All of you whiners, if you really want to make a difference, start walking or take the bus; otherwise shut up!
By Eric @ 05/26/09 09:20:37 AMreport abuse
Oil Speculation
When it comes to the price of a barrel of oil, you can throw out that old economic book about "supply and demand". Just like most of the posts here, oil prices are manipulated by the big money speculators that cause these hugh swings in price per barrel. Like just about everything else in our economic system, it's gotten out of control. The big money people aren't happy making a nice little profit, it's like a big game on Monoply, they just want to wipe everyone else out, just because they can. I agree with one of the previous posts where, speculators should be forced to actually take delivery on the oil they purchase futures on. This would at least slow down the out of control speculation.
By John @ 05/23/09 10:20:21 PMreport abuse
Devalued US$ and oil pricing
Mr. Howard,

I have a theory I would like to share with you regarding oil price inflation, and was wondering what your take on it might be?

First, oil is priced and traded worldwide in US dollars. Thus the international commodity, US dollars (commodity A), is exchaged for the other international commodity, oil (commodity B).

Second, the US Government, by printing massive amounts of new dollars (commodity A), has vastly increased its supply, and thereby lowered its purchasing power relative to oil, (commodity B).

Third, the overall result would seem to be that it would take more of the international dollars to buy the same amount of international oil, even if oil supplies are rising.

(Just as the price of housing kept going up, even as record numbers of new homes were built, due to the massive flow of devalued money through cheap interest rates).

Fourth, since oil is priced in the various countries in their local currency, and "if" their currencies are appreciating versus the dollar, that would seem to negate rising prices for local populations. Conversely, the US population, since there is no FX mechanism, ultimately would bear the brunt of the price burden as the devalued dollars come home in the form of oil price inflation.
By Dirk @ 05/23/09 12:30:26 PMreport abuse
Oil Prices
Clark, come on, you of all people should understand the economics of oil. The holiday is here, school almost out. What a better way to capture MORE profits of the common peoples money. When the price of oil was $50/barrel two years ago we paid $1.69 per gallon. When the price fell below $50/barrel our prices actually went up. I dont want to hear anything about why the GAS prices went UP. We all know, do they think we are stupid? Oil people lining their pockets with gold. Good thing NObama focus is on CHANGE, see how fast they have lowered the gas tax....LOL Which would free up more money then loaning billions to the banks!! Common sense.....not CHANGE, Obama needs to focus on reducing the cost oil gas to the general public.
By Ron @ 05/22/09 05:16:03 PMreport abuse
oil prices
the oil companies love the speculators driving the prices up....they also love any bad news (refinery fire) that they can make sure gets publicity to help fuel the fear of shortages and pump up their profits....I think in order to buy oil futures you should have to accept delivery of at least 1 order.....that way only companies that would really wind up using a 1000 barrel minimum order would be influencing the prices....or the stock speculators with too much money and nothing to do with it can build holding tanks in their yards in order to cash in on the higher oil prices they help create.
By Dave @ 05/22/09 01:34:03 PMreport abuse
oil market manipulation
The high prices are once again probably being brought about by abnormal speculation in the futures markets. Lookup "Enron Loophole", "London-Dubai Loophole" and go to Youtube.com and search for _Greenberger oil_ and scroll down a few hits to ex-CFTC chairman Michael Greenberger explain the situation in plain english. He also says the loopholes could be closed by "this afternoon". Also type in _Enron Loophole_ at youtube and look for the MSNBC piece by Keith Olbermann (whom I normally don't like) but this one is spot-on. Unlike ALL other commodities, the Energies are UNREGULATED because of these loopholes.
By Oil info @ 05/22/09 01:23:16 PMreport abuse
C'mon Clark, I thought you were smart
Gasoline is not oil, duh. We now have import gasoline because many U.S. refineries are old and dilapidated, and the environmental laws won't allow anyone to build new ones. On top of that the EPA and states require many different blends of gasoline to meet specific requirements in different states. All of that drives up the price at the refinery or leads to regional shortages which also drive up gasoline prices. There could be lakes of oil for free, but if your local gas station can't fill its tanks with the specific type of gasoline the EPA requires, none of that matters a whit!
By Ted @ 05/21/09 05:14:40 PMreport abuse

Gasoline glut!

The price of gas seems to be controlled by the refineries. They are all owned by a few BIG BOYS. The price of gasoline is up because we have fewer refineries to convert OIL into gasoline!

By Danny H @ 08/01/09 01:21:20 PMreport abuse

Gasoline Prices

This all still doesn't explain the apparent price fixing by the various companies and the lack of price competition that used to be common several years ago!

By Dan @ 06/25/09 09:10:36 AMreport abuse

Oil vs gas prices

Ted has it right on - and Clark is right about supply and demand in general but he is wrong in that it is the supply of REFINED product that is at issue. There IS NO FREE MARKET in the motor fuel business. Too few refiners in too few places equal a situation where, because the government says 'you must sell oxygenated fuel in the summer', the refiners wait until there is a shortage to produce enough gas. Guess what - THEY know the demand will go up starting about Memorial Day. They have every incentive to wait because they KNOW no one else is capable of stepping in and supplying the market. They wait to make oxygenated gas: the price goes up: they make more money than they would have otherwise. Same thing in reverse in the fall. Wait to make UNoxygenated gas, the price goes up = more profit. That is management's job - to maximize profits. The only way to fix it is to make sure there are enough refineries in enough areas of the country to supply the demand when other refiners get too greedy. It is unlikely this will happen anytime soon since too few 'big oil' companies control the too few refiners. It seems the breakup of Standard Oil in the 30's has been forgotten. What say you Clark?

By BRTKelso @ 05/29/09 06:18:02 PMreport abuse

Chicken or Egg Tastes the Same to Me

So, the Liberals scared us, and therefore the oil speculators are hoarding, causing the price to rise?

Or, the speculators are hoarding, causing the populace to prod the Liberals into scaring us, causing the price to rise?

Chicken and egg taste the same when they come out the other end! I can't help thinking about how fast the price of oil rose *right*after* the 2008 stimulus checks started hitting the mailboxes, and how fast it dropped when "mad money" dried up.

I don't buy the free market idea anyway. What with governmental and non-governmental powers' constant interference on both the left and the right, the free market concept is just an outdated story told to young children to bore them to sleep.

The free market smells like those chickens and eggs coming out the back side! But it makes a damn fine story, eh?

By Cecil Nixxon @ 05/29/09 12:52:24 PMreport abuse

I'm sorry I can't do that, Dave.

Actually, Dave, I run my own business, have employees to pay, pay corporate taxes, fixed expenses, costs of goods, and if anything is left over, get paid, myself. I'll bet you don't even know what most of that means. Unfortunately, many people, like you, are conned into thinking government is the answer for everything. I hope Obama doesn't tell you how much you can earn next year because it is all in the name of "fairness". Stop drinking the liberal koolade, Dave, before it's too late!!

By Eric @ 05/27/09 04:54:57 PMreport abuse

Gas Prices

Clark, Obama proposal to change our Transportation in the yr 2016 is the reason for this onslaught of price gauging, we will not see a decrease because of greed and fear (lost of their control) seven years from now. "What a shame" the Politicians don't mind watching working class people struggle to take care of their families, they must don't know the word "Budget, Fixed Income, and Low Income".

By Not Needed @ 05/27/09 09:39:45 AMreport abuse

Oil consumption

I see people every day who dep[end so heavily on a motor vehicle to do every thing. They spend every day literally running to taverns, restaurants, shopping centers, and all manner of other places. They have no sense of priorities. They never stay home, never get themselves out of debt and can never grow up and settle down. The worst of it is in the midwestern states. The demand for gasoline is highest here. Nearly every other vehicle on the road is a four wheel drive truck or a sport utility vehicle.

People take out second mortgages on their houses to finance frivolities like these. I use a bicycle most of the time now. I use a back pack and can make multiple trips to the store if necessary. My health and state of mind are improving and the quality of my life is improving.

In the mid west, conservation is a meaningless word. People are whiners and spoiled rotten. They can't conserve anything no matter what it is if their very lives depend on it.

If the majority would get off their fat rear ends and get some ambition and start weaning themselves away from running around every day all day long just so they can brag about what they have that someone else doesn't, they ,might see the price of oil come down.

Less than half of the consumption is for necessity.

Where I live, traffic flow studies reveal that about 85% of traffic every day is accounted for by people running between shopping centers, taverns and resturaunts. "Frivolous fools."

By Jerry @ 05/27/09 02:55:44 AMreport abuse

Eric wins the prize

I thought i saw plenty of moronic posts on Clarks boards, but I think Eric just earned the prize for being the biggest dope.....he says he hates whiners, but whines very loudly . Yes Eric free market changes prices but oil and gas are sortta like food, if the price goes up you cant stop eating (or move to Venezuela) It affects every business that transports goods or has materials shipped to them, it affects every person that can't jump on a bus to go to work...it hurts the whole economy and if it's skewed because of speculators instead of supply and demand then Government needs to step in and fix the problem...because morons like you who shout comrade and whine about poor people getting breaks won't get it fixed in a million years....matter a fact I bet you don't even have a job, I bet you just sit around all day posting moronic blather on comment boards like this. I guess you can be proud, because it will take a giant ignoramous to top your post.

By Dave @ 05/26/09 02:29:44 PMreport abuse

Oil Costs

WAAAAAAA

All you big pansies out there whining about oil and gas prices. Why don't you just stop driving? This is a free market for now and prices change with supply/demand/speculation. Why don't you move to Venezuela? When Comrade Obama gets through, you can bet the "poor" get a price break on gas but not the average Joe. I agree with Ted the price of gas is affected with all of these different blends required by different cities. Have you seen the price of diesel lately? It is now CHEAPER than gasoline, but is refined from the very same oil. All of you whiners, if you really want to make a difference, start walking or take the bus; otherwise shut up!

By Eric @ 05/26/09 09:20:37 AMreport abuse

Oil Speculation

When it comes to the price of a barrel of oil, you can throw out that old economic book about "supply and demand". Just like most of the posts here, oil prices are manipulated by the big money speculators that cause these hugh swings in price per barrel. Like just about everything else in our economic system, it's gotten out of control. The big money people aren't happy making a nice little profit, it's like a big game on Monoply, they just want to wipe everyone else out, just because they can. I agree with one of the previous posts where, speculators should be forced to actually take delivery on the oil they purchase futures on. This would at least slow down the out of control speculation.

By John @ 05/23/09 10:20:21 PMreport abuse

Devalued US$ and oil pricing

Mr. Howard,

I have a theory I would like to share with you regarding oil price inflation, and was wondering what your take on it might be?

First, oil is priced and traded worldwide in US dollars. Thus the international commodity, US dollars (commodity A), is exchaged for the other international commodity, oil (commodity B).

Second, the US Government, by printing massive amounts of new dollars (commodity A), has vastly increased its supply, and thereby lowered its purchasing power relative to oil, (commodity B).

Third, the overall result would seem to be that it would take more of the international dollars to buy the same amount of international oil, even if oil supplies are rising.

(Just as the price of housing kept going up, even as record numbers of new homes were built, due to the massive flow of devalued money through cheap interest rates).

Fourth, since oil is priced in the various countries in their local currency, and "if" their currencies are appreciating versus the dollar, that would seem to negate rising prices for local populations. Conversely, the US population, since there is no FX mechanism, ultimately would bear the brunt of the price burden as the devalued dollars come home in the form of oil price inflation.

By Dirk @ 05/23/09 12:30:26 PMreport abuse

Oil Prices

Clark, come on, you of all people should understand the economics of oil. The holiday is here, school almost out. What a better way to capture MORE profits of the common peoples money. When the price of oil was $50/barrel two years ago we paid $1.69 per gallon. When the price fell below $50/barrel our prices actually went up. I dont want to hear anything about why the GAS prices went UP. We all know, do they think we are stupid? Oil people lining their pockets with gold. Good thing NObama focus is on CHANGE, see how fast they have lowered the gas tax....LOL Which would free up more money then loaning billions to the banks!! Common sense.....not CHANGE, Obama needs to focus on reducing the cost oil gas to the general public.

By Ron @ 05/22/09 05:16:03 PMreport abuse

oil prices

the oil companies love the speculators driving the prices up....they also love any bad news (refinery fire) that they can make sure gets publicity to help fuel the fear of shortages and pump up their profits....I think in order to buy oil futures you should have to accept delivery of at least 1 order.....that way only companies that would really wind up using a 1000 barrel minimum order would be influencing the prices....or the stock speculators with too much money and nothing to do with it can build holding tanks in their yards in order to cash in on the higher oil prices they help create.

By Dave @ 05/22/09 01:34:03 PMreport abuse

oil market manipulation

The high prices are once again probably being brought about by abnormal speculation in the futures markets. Lookup "Enron Loophole", "London-Dubai Loophole" and go to Youtube.com and search for _Greenberger oil_ and scroll down a few hits to ex-CFTC chairman Michael Greenberger explain the situation in plain english. He also says the loopholes could be closed by "this afternoon". Also type in _Enron Loophole_ at youtube and look for the MSNBC piece by Keith Olbermann (whom I normally don't like) but this one is spot-on. Unlike ALL other commodities, the Energies are UNREGULATED because of these loopholes.

By Oil info @ 05/22/09 01:23:16 PMreport abuse

C'mon Clark, I thought you were smart

Gasoline is not oil, duh. We now have import gasoline because many U.S. refineries are old and dilapidated, and the environmental laws won't allow anyone to build new ones. On top of that the EPA and states require many different blends of gasoline to meet specific requirements in different states. All of that drives up the price at the refinery or leads to regional shortages which also drive up gasoline prices. There could be lakes of oil for free, but if your local gas station can't fill its tanks with the specific type of gasoline the EPA requires, none of that matters a whit!

By Ted @ 05/21/09 05:14:40 PMreport abuse

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May 21, 2009 -- With oil in oversupply--why the high prices?

What others are saying