What is causing the rise in the price of oil?

Answer 1

The rise in the price of oil can be traced to a a simple factor, but there are several other contributing factors.

The simplest explanation is that the demand for oil is greater than the current production. When demand exceeds supply, price will increase as people are willing to pay more to ensure that they get their scarce resource (oil in this case).

Depending on your political views and knowledge of the situation, you may also believe that the production of oil is much lower than capacity because certain middle-eastern countries know that America depends on oil imports more than other countries. An increase in oil prices will lead to a slightly weaker US economy.

If you want to know why gas is more expensive, see the simple reason above but also factor in the greed of the oil companies. Unfortunately, Americans have put themselves in a position where they consume very large quantities of gas, and they have no other legitimate fuel alternative. What this means to gas companies is that they can increase the prices substancially, and because Americans "need" so much gas, they will be forced to buy it at the higher price (or go without driving).

The other reason is that OPEC is a large cartel arrangement that has the sole purpose of profit maximisation as a whole. Thus they set the industry MR and MC to maximise profits for the industry as a whole as opposed to competing amongst each other - this allows OPEC to effectively limit the output so that it corresponds to the profit maximising level and drive up the price.

Answer 2

Partially, it's a matter of "supply and demand". Asia is using far more oil than in the past. There is an economic surge in the Far East, and they are using much more oil than they have in the past. Couple that with the fact that the U.S. is using far more oil as well. We have more drivers driving more vehicles. We have more factories using more oil and electricity. Much of the electricity in the U.S. is generated by oil fueled generators as opposed to the nuclear generators that are used in much of the rest of the world. While Middle East oil fields are still generating oil, they are able to charge whatever they like, since Environmentalist extremists are preventing any possibility of drilling in the large, untouched oilfields of Alaska. We are also having trouble getting any kind of action in the oil shale and tar sands of the Western U.S. So it's only PARTIALLY supply and demand. We're being held back by the extremists and it's costing the ordiary people who only want to have a car to go to work.

Answer 3

There are too many people on the Earth, all wanting oil and oil is running out. Therefore are it becomes less plentiful and more and more people are wanting it the price that can be asked for it will go higher and higher. It is called the supply and demand. If you think the price of Oil is high today, just think what it will be in 10 years time! I shall add that there are enough oil reserves in the nations that are already major oil producers for a very long time. The estimates of oil reserves in Alaska are huge. Oil prices are a reflection of many economic and political world affairs. The definition of high or low prices is indeed difficult to calculate.

Second answer

Prices are in general determined by the interaction of supply and demand.

The supply of oil (that is, the amount that the producers will deliver to market at any given price) is at the moment restricted partly because of troubles in the major producing countries (war in the Middle-east, kleptocratic government in Russia, incompetent management in Venezuela, corruption and violence in Nigeria, etc.) and partly because most of the oil that was easy to extract has been used already. Restricted supply tends to raise prices.

Demand for oil (that is, the amount that consumers will buy at any given price) is at the moment fairly large, despite recession in the West, because of economic development in China and to some extent India. China and India are building oil-fired power stations, which consume oil, and they are building things out of concrete, which contains cement made with coal or oil to fire the kilns. Also, in those countries a lot of people who used to be too poor to afford motor-vehicles are getting to be prosperous enough to buy and run motorcycles and scooters, while those who previously owned and ran motor-cycles and scooters are prosperous enough to move up to cars. Farmers in China and India are buying trucks and tractors, too.

With the supply curve moving to the left and the demand curve moving to the right it is indeterminate whether consumption will rise or fall, but so long as the supply curve is upward-sloping and the demand curve is downward-sloping it is clear that the intersection must occur at a higher price.