Is oil too expensive right now?

by frog

I know the idea of oil being too dear is not a normal question canvassed here on frogblog, but I am left scratching my head as to why the price is staying stubbornly high when the data suggest it should be drifting downwards. I’ve just read this month’s OilWatch Monthly, and it seems that Rembrandt Koppelaar is of the same mind, but for more rational reasons.

My logic was that the US economy’s stagnation and the jitters across the Euro zone about Greece’s near default and the plight of the PIGS would surely be keeping the oil market depressed. And it is.

Rembrandt points to high stocks and high spare capacity in oil producing countries as his reason for the price to be lower – but it is stubbornly staying in the $70 dollar range.

Adding fuel to my misgivings is a little celebrated change in how much people in Europe pay for oil versus the Americans – the drop in the Euro now means that the European advantage has evaporated and US consumers now get their oil a tad cheaper relative to the Europeans. Oil Insights explains:

From the first time in 3 years, on a relative basis oil is going to be cheaper in the US when compared to the Euro-zone. In addition to the sovereign debt crisis, the austerity measures, the public protest riots and the widespread distress and turmoil, the PIGS (Portugal, Italy, Greece, and Spain) now also need to worry about more expensive oil.

I cannot see oil doing anything but going down. Why is it staying buoyant?

frog says

Published in Economy, Work, & Welfare | Environment & Resource Management by frog on Tue, May 18th, 2010   

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