Monday, August 07, 2006

Oil Prices Affecting Economy

Oil prices increased to $77/barrel today, possibly because of problem at Prudhoe Alaska (see this story at The Oil Drum). Although rising oil prices are not affecting the economy as sharply as the famous oil problems of the 1970s, the effects are beginning to accumulate. Here's a story from CNN:
Higher oil prices are starting to cause havoc far beyond the petrol bowser. Slowly but surely, the rise in the price of oil is pushing up inflation and interest rates and affecting people's spending habits and share markets.

Where the price of oil is headed is anyone's guess. But predictions for the short term outlook range from the current level of around $74 to $100 a barrel by the end of the year before a possible retreat.

Mostly the outlook for oil prices comes down to supply and demand. With global production capacity at a very low excess (about 2 million barrels a day) and China ready to buy any oil there is, there is no shortage of demand.

Couple that with the problems facing most of the oil producing areas -- Nigeria, Venezuela, Russia, Middle East and the Gulf of Mexico -- the price of oil is not expected to retreat in the near future.

In the meantime, President Bush continues to show poor leadership on the energy issue. If Bush's wars are about oil, as some people theorize, his efforts are not doing us any good. We need leadership now, not three years from now. In the absence of badly needed national leadership, there are signs that individuals and states are beginning to work on their own solutions but a great deal more needs to be done.

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