Understanding oil price volatilities

With the price of oil jumping every time someone wants to pass gas, it certainly helps to understand why. It only requires you to know a few simple things, all of them make sense to some extent.

The first and most important fact simply is, there is no oil left. There are so few reserves here and there, this fact has the effect of making the people who set the price nervous to start. So very simply if any supplies go offline, supply will not keep up with demand.

The second is there is just enough oil being pumped between all the countries with only Saudi Arabia with capacity to go a bit more being about 2 million barrels a day. That is not much as we are using about 87 million barrels a day now. That number is expected to be 94 million a day in 2013. So simple math here spells it out very clear. If you believe these numbers we have about 18 months to 2 years left before the tipping point no longer becomes political. That day is roughly New Years day 2010. In this case Saudi Arabia becomes a bit of a political cushion if another country wants to use oil as leverage.

The Third is some of the oil producing countries have leaders that are (for lack of a better word) volatile just like the oil they pump. Stir them or shake them up and they threaten to stop sending oil. No names need be mentioned as most already can figure out who they are. It is this third factor that is the real major cause and is adding at least 30% to the price of oil.

However with all this doom and gloom, the fact still is we need to change from oil to another source of energy. Some politicians see this, others do not and for the ones that do not it is all about big money and political donations. Keep that thought in mind the next time election day rolls around.


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