Oil pricing is affected by many factors, but it’s important to be mindful of long term trends. Such as what I keep reminding you of here: That for the last 20-30 years, the world has been using twice as much oil as it has been finding. Just to keep up with the normal oil decline rate, we would need to find a Saudi Arabia every two-and-a-half years.
Hawaii News Now writer Howard Dicus wrote a very informative blog piece, about what causes oil prices to rise and fall, called The Crazy Economics of Crude Oil and Gasoline:
The price of crude oil crashed today for reasons so complex and crazy it will surely reinforce your view that mankind has invented markets too complicated to manage.
…As a regular consumer, your encounter with energy prices is pretty straightforward:
- When you need gasoline, you pay for it on the spot, then you get to use it.
- When you need electricity, you get to use it, then you have to pay for it a few weeks later.
- When you buy anything else, you know energy costs are usually buried inside the price.
When crude oil is bought and sold on commodity markets, there is a spot market to buy oil on the spot, but most oil is traded through contracts to deliver oil on a specific date in the future…..
We are happy to see a decline in oil prices, but like I said, we need to be mindful.