What is the reason causes the oil price increase锛?

an increase in demand will cause prices to rise. a fall in supply will cause prices to rise. if you have both at the same time prices skyrocket. third world countries are industrializing. china and india have seen huge leaps in oil demand and our supply is level with new discoveries not out weighing oil fields in decline.What is the reason causes the oil price increase锛?
There are a number of reasons, but they all stem from basic supply and demand:





1. Surging global demand. We are experiencing the first period since decolonization where every global region is in economic boom right now. The demand for fuel is booming, especially in China, India and parts of the Middle East. China alone, is consuming about 60% more oil then they used in just 2000.





In the late ninetees, gas was really cheap because of the asian finacial crisis which caused demand for oil in east asia to fall, and that was before China and India were in full thrttle as well.





2. Low oil prices in the 90's cuased oil companies aroufn the world to spend less on development and exploration. They are only starting now and these projects take years to put into production.





3. Easily extractable oil is running out. Outside of Saudi Arabia, most new oil sources are in difficult to get to places, like under sea floors, in the Oil sands of Canada, or the shale oil in Colorado. There is a ton of oil left it these places, but it will cost more to get. It is estimated that the shale rock oil reserves in Colorado, and Utah and the Oil sands reserved in Alberta are larger then the liquid reserves in Saudi Arabia. Its just that until now, when technology has improved and prices are high, it wasnt economic feasable to develop these projects.





This is also how we hear the myth that oil is going to run out soon. The term ';Oil Reserves'; that people quote to say things like ';we only have enough oil for 40 years'; is misunderstood. The technical definition of oilr reserves is known oil sources that are economically feasable to extract at given market prices and given technology.





It doesnt take into consideration new descoveries and the economically feasbale part. As market prices go up, more sources are feasable, so in a weird way, higher oil prices increase resereves. Also, as technology improves, more oil is available. That is why the Oil Reserves in years have grown over time. In 1900, Oil Reserevs would only last us untill about 1950 and in 1950, known reserves would have run out in the ninetees. We obviously havent yet. So though, yes, we will run out some day, its not anywhere close to coming true, we might just have to pay more for it though.





4. The dollar losing value for a number of reasons. This makes it more expensive for the US to import oil. Some of the price increase of oil is simply because dollars are less valuable now then they used to be. The dollar has lost about 10% of its value relative to other currencies in the last year.





5. Insatbility and fear. Investers and companies are stockpiling oil because of global instability in Iraq, Iran, Nigeria, Veneuela and so on. This in know as the ';risk premium'; and on th $95 dollars or so a barrel is now, it is estimated thata bout $20 is risk. (Keep this in mind if the US withdraws from Iraq before it is stablized and a real civil war happens in the Middle East and Iran and Saudi Arabi fight a proxi war, and Turkey is putting down the Kurds)





6. Government controls and restrictions. Many oil felds have been nationalized by governments. Ie russia and Venezuela. Though this has created short term benifits for the people of those ocuntries, investment in future projects has deminished and oil production has fallen off in venzuela since Chavez came to power. Furthemroe, most of the sources available in the western world are being held up be government regulation, both enviromental concerns and ';not in my backyard sindrom'; In the US for example, no new refinery has been built since 1979 and as a result we are a net importer of gasoline when it could be made in our own country. Most offshore drilling is also prohibited as well as drilling in Alaska.





OPEC has also not been helpful, purposely expanding output slower then the rise in global demand.





7. Invester Speculation - The rise has caused investers to ';bet'; on the price increasing so they buy up futures cotnracts that drive the price up temporarily. But at somepoint, these contracts will have to be sold and the price will decrease more so them it would in their absence. So we are currently paying more for oil then supply and demand would dictate, but at some time in the future we will pay less then what supply and demand dictate.





8. Ethanol mandates- Ethonal, though maybe benificial int he future as technology improves, is a complete waste now. Starting in 2006, 10% of gasoline must be ethonal. However, it is veery expensive to make this out of corn and partially because of this mandate, corn prices have doubled since then, which has also driven up food costs because corn in an imput to animal farming and sweeteners and oils. We also have a huge tarriff on importing sugar which would alow us to make it cheaper. Ethonal also cant be shupped on pipelines because it corrodes the pipes, so it must be trucked to locations and then mixed which is expensive. The end result, is it takes a large amount of the energy that you get out of a gallonn of ethonol just to produce and transport it. It was just a politcal move to appease farmers, the green lobby into thinking that the enviroment was being helped, and national security wonks who think it will help reduce dependnce on oil. Maybe int he future it will be worth while,, but fornow, there is a reason whey it needed a congressional mandate... the stuff was usless and there was no market for it.





Furthermore, the demand for oil is refered to as being ';inelastic.'; This means that a relatively small change in demand or supply will result in a relatively large chage in price. Goods that are essential, like food and fuel, do not have readily available substitutes, so it takes a very large change in price to effect the amount demanded to bring supply and demand into equilibrium. So for instance, a 5% increase in the demand for oil might result in a 10% increase in the price. So all the effects mentioned above have a large impact.What is the reason causes the oil price increase锛?
There are many underlying factors such as ';tension'; in the middle east but is my strong belief is that here in the USA the environmentalists have put a stranglehold on development of our natural resources. Cant drill for oil, cant build refineries,cant build pipe lines, cant build nuclear power plants, cant mine for coal etc etc. Thats a lot of CANTS isnt it! You pay for environmentalism with your taxes and you pay for it with your pocketbook at the pump!