Help me convince my neighbor that war in oil producing region does not cause high oil prices?

Question

yeah..I know I have heard this over and over again that just because the middle east is raging with warfare, and the threat of even more warfare is looming that none of this has contributed one iota the consistently high oil (And gasoline) prices we have seen.

So I would like for one of you people help me convince my neighbor that there is not speculation by oil brokers and traders that prematurely drive up prices in anticipation of possible shortages. In fact, I have even heard it call a "war premium" for the iraq war, and a"potential war escalation premium" for the possibility of war with Iran.

Ok, so none of this affects oil prices and has had had anything at all with us paying so much more for gasoline....right? My neighbor swears that war in an oil producing region either reduces supply of oil (Causing higher prices) or increases speculation of war wich increases the price of oil. Help me tell my neighbor he is mistaken.

Answer 1

umm sorry to tell ya, bt it does. Why would you wish to mislead someone by telling them falsehoods?

Here is how it works.
Oil prices are created by demand.
If that demand was only between oil companies and refiners and eventually consumers, oil prices would be far lower than they are today.
BUT, we have this thing called a stockmarket, where people buy and sell commodities, and many of them have no use for the commodities they buy except to buy them and hold onto them until they go up in value so they can sell them for profit.
This is called speculative trading, and is what is responsible for the higher oil prices. (well that and a lower US dollar but we'll ignore that for the sake of simplicity)
What happens, is any world event that traders view as a threat to oil supply, is automatically viewed as a boost in future prices and a money making opportunity.
The same thing happens to orange prices when california gets a hard ice storm at the wrong time.
Traders buy up as much as they can, in order to profit on the speculated increase in future value. When they do this, this makes demand appear to be greater which drives up the prices whether there is any real slump in supply or not.
So anytime USA gets into a heated argument with an oil producing nation, or anyone gets into a war with one, it is viewed as a possible threat to supply, so traders buy buy buy.
It is how all commodities work.
-threat to supply is always viewed as increased value and future profit.
There is also a little fact that once war breaks out, every country in the world fills their strategic reserves and keeps them full, and is reluctant to let them dwindle to lower the oil market prices. So not only does war cause speculative traders to drive up prices, but also forces competition between government for the commodity, which drives the prices up.

as far as gasoline, oil effects it price slightly, but in reality, gasoline is more affected by real supply and demand than oil is. Since refiners have bought up most of the smaller refineries and closed them down, and closed down many others for maintanance and never reopened them, they have pinched supply to drive up margins.
Since their is no economic incentive for them to build new refineries just to make you and I happy, by driving up supply, while driving gas prices and margins down, they aren't going to. They'll just blame the problem on environmentalists and laugh at the suckers who believe them, all the way to the bank.

Your neighbor is quite correct.

Answer 2

If we ignore the fact that China and India now compete with us for oil and that the dollar has devalued almost 50% since 2002, then perhaps it is simply a war driven event. The fact that Hubberts peak was applied to world oil production in 1995 and it was predicted that a peak would occur between 2004 and 2008 seems to be lost on a lot of people. I am surprised that this did not occur in the late 1990's or early 2000's.

Answer 3

In part, your neighbor is actually right, but that isn't the complete answer. The truth is there are many factors that play into the price of oil. For the US, most of our oil comes from Canada and the Gulf of Mexico, somewhere around 25% or so comes from the Middle East. Some of the other factors involved include hurricanes, distribution, speculation, war, oil supply, temperatures, driving season, processing, increased demand by China and other developing countries, etc. As you can see there isn't one right answer, but a myriad of things that tie into the price of oil.

Answer 4

I'm not totally sure if you don't believe it but.... when there is a terrorist attack on a pipeline or disruption to oil supply because the oil industry gets shut down due to being bombed to pieces then the price of oil goes up. If there is less of an item that people all regularly use then people will pay more to make sure they are the ones who get it and don't miss out. So price goes up.
However, when oil reserves in America go down then the price of oil goes up, when the weather gets much colder than usual in winter then the price of oil goes up and when China and India start using so much more oil than they did 5 years ago... the price of oil goes up!
So it's not just war but that can be part of it!

Answer 5

Gas has ALWAYS been more expensive in Europe and Japan. Part of the reason is from the gas taxes which are used to help subsidize public transportation - something the US needs, but doesn't really have outside of a few areas. As for war being waged over oil or food - anything is possible. We already went to war with Iraq for their oil.

Answer 6

Oil goes up when a hurricane enters the Gulf of Mexico. Oil goes up if it hears the OPEC is going to reduce the flow. Oil goes up if a butterfly flaps its wings in Japan. This has nothing to do with War, the President, or the Vice President. Any excuse the Oil Corporations can use to increase the price per barrel they will.

Answer 7

there is what is known as GEO-POLITICAL RISK built into oil prices. For example, a war in the Middle East puts ships going through the Straits of Hormuz at risk. Since a large amount of oil is shipped through that narrow channel, any risk to ships will cause insurers to significantly raise premiums on cargos in that area. This additional cost, RARELY IF EVER mentioned by the media, is included in your final AT THE PUMP price, as oil companies include their TOTAL costs to refiners. There is more to it than that, but there is SOME truth to your friend's thinking.

Answer 8

Sorry , but you owe your neighbor a beer.

The price of crude increased to $96 a barrel from $60 on SPECULATION by oil futures traders of possible shortfalls and interruptions in supply due to unrest in oil producing regions.

The cost of gas is a direct result of the cost of R&D, crude oil per barrel price, refining, transportation, markup and taxes.

Simply stated, the crude oil futures price has EVERYTHING to do with the cost of gasoline.

Answer 9

You are BOTH mistaken - it's a conspiracy between the oil companies, and groups such as OPEC. War is just one of the excuses that they use to justify raising prices (and filling their wallets with cash)


Haven't you noticed - the second that oil prices go up, so does the price you pay at the gas pump. But when oil prices go down, they CLAIM that it takes SIX MONTHS for oil prices to affect the price of gas...

>:(

Answer 10

Ultimately no matter what facts you present to your neighbor they will continue to believe it's a war for oil and that is why oil prices are as high as they are and that Bush has something to do with oil prices.

Most liberals are too blinded by their hatred to know that it's actually the speculators that are causing the high oil prices.