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Who's to Blame for High Oil Prices?

Written by Luke Burgess
Posted July 6, 2018 at 12:49PM

If I could go back to my 15-year-old self to tell him one thing, it might be this:

People are completely full of it. No one ever grows up. Adults are just as immature as (if not more than) teenagers.

You don’t have to look very hard online to see this is true. Social media is flooded with oversensitivity, unjust aggression, name-calling, bullying, finger-pointing, etc. If you use Facebook or Twitter, you know exactly what I’m talking about.

But it doesn’t stop at social media. Businessmen, commentators, entertainers, community leaders, and (perhaps more than others) politicians interact with each other in very immature ways. If you pay attention to the news, you know exactly what I’m talking about.

It’s like the entire world suffers from some sort of Peter Pan syndrome.

The latest in the never-ending spats is a back-and-forth dispute between Washington and OPEC over oil prices.

Trump blames OPEC for high oil prices...

OPEC blames Trump for high oil prices...

Trump doubles down on the blame...

OPEC triple-stamps a double-stamp...

It's like watching two children trying to blame each other for a broken lamp.

A few weeks ago Trump blasted OPEC, blaming the cartel for the 60% increase in oil prices over the past 12 months. The president wrote in a tweet, “Oil prices are too high, OPEC is at it again. Not good!”

Iranian oil minister Bijan Zanganeh then fired back, “President Trump has created a difficulty for the oil market by imposing sanctions against two important founder members of OPEC, and now expects OPEC to change something for the better price in the market.”

This week Trump responded, “The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!”

This back-and-forth blame-game is likely to continue with both sides pointing their fingers at the other. But who’s really responsible for rising oil prices?

Well, you might not like the answer...

Everyone.

The reason oil prices are on the rise is simply because demand is strong and inventories are low.

It’s supply and demand.

It’s true that OPEC does control a lot of the world’s oil supply. But the demand comes from the consumer. No one is forcing the consumer to consume.

Similarly, we have a tenancy to blame drug dealers for drug abuse and addiction. But the consumer is also to blame. If there were no demand for drugs, there’d be no addiction. Both the supplier and consumer are contributing.

It's not one side or the other who's really to blame for rising oil prices. It's both.

This week, oil prices touched $75 per barrel for the first time since November 2014. And the price of crude is prepared to go even higher, with healthy global demand and involuntary drops in crude supply from Venezuela, Angola, and Libya.

Some estimates show American consumers spending $50 billion more on gasoline than last year, despite higher prices. And with trade tensions, possible U.S. sanctions against countries importing Iranian oil, and demand on the rise, many believe the oil market is headed for a super-spike.

According to analysts at Sanford C. Bernstein & Co., “Any shortfall in supply will result in a super-spike in prices, potentially much larger than the $150 a barrel spike witnessed in 2008.”

Are you hedged for such a spike? If not, you should be.

Buy oil today before it’s too late.

Until next time,

Luke Burgess Signature

Luke Burgess

follow basic@Lukemburgess

As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bubble and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.


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