High Gas and Oil Prices: It's Not Just About the Middle East
Oil would cost $90 a barrel. Why? The simple rules of supply and demand.
March 28, 2011 — -- Gas prices are still at their highest levels since 2008 in part over the Japan earthquake and turmoil in the oil-producing Middle East. But analysts say the price of oil and gas would still hover at a surprisingly high level despite geopolitical concerns.
Oil futures settled at $105.40 a barrel Friday, the third consecutive day above $105, according to the Chicago Mercantile Exchange Group.
Today, the Department of Energy will release its weekly gas prices and analysts expect they will remain mostly unchanged. Last week's national average was $3.51 per gallon for regular gas, an increase of 74 cents from a year ago, and .05 cents from the prior week. Last week was the 13th consecutive week that the average was above $3 a gallon. The last time gas was above $3.50 was Sept. 29, 2008, when the weekly average was $3.64.
Robert Powell, Middle East analyst with The Economist Intelligence Unit, estimates that even without the current conflicts in countries including Syria, Yemen, Bahrain and Libya, oil would still be around $90 a barrel. Why? The simple rules of supply and demand, he said.
"The fourth quarter of last year was pretty robust globally," Powell said.
In fact, the Commerce Department on Friday announced that the U.S. economy grew more quickly than first thought. Gross domestic product in the U.S. grew at an annualized rate of 3.1 percent, revised from 2.8 percent.
Charles Dewhurst, national energy practice leader at BDO, agrees with Powell that without the recent global events, oil prices would be around $90 a barrel. He points to events in Libya and Japan, in particular, as contributors to the high price of oil.
"My perspective is there probably is a $15 price premium right now because of those two events," Dewhurst said. "The Japanese economy is going to need its electric power from oil-based sources as a backup to their nuclear problems. Their demand for oil has already increased."
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