I'm an energy trader and believer in free markets. Price is merely a reflection of supply/demand balances regardless what anyone says. All I can say is that the market is high right now because it is pricing in the following:
1)Political unrest in some of the largest oil producing countries in the world. Read Russia, Middle East, Nigeria, Venuezuela, etc...
2)World Daily Supply/Demand balances for Crude Oil have continued to shrink.
3)Location of some of the largest US oil and natural gas production is offshore. It just happens to reside in the Gulf of Mexico and for 6 months out of every year is the target of Mother Nature which has the ability to literally wipe out or severly reduce production out there with just a few days notice.
4)Location and capacity of refineries. Again, a majority of our refining capacity in the US is also located on the coastlines of the Gulf of Mexico and is subject to the same exposure as our production.
5)US refining capacity is limited and outdated and is subject to frequent downtime.
5)US pipeline system is also limted and outdated.
The thing is, we have the technology nowadays to help alleviate alot of this but it is just taking time to get production from this new technology brought online. Coal Gasification Technology for Natural Gas, Canadian Tar Sands for Crude Oil, LNG imports for Natural Gas, etc...
We have the ability to build safer nuclear power plant and cleaner coal fired power plants which both would help help alleviate alot of the strain on natural gas supplies. People forget that back in '98 and '99 we had huge power shortages and because of this, alot of natural gas combined cycle power generation was built.
We have the ability with biodiesel and ethanol to help supplment the refining capacity with unleaded gas, diesel and heating oil.
We continue to build LNG terminals on the various coastlines to bring in this cheap form of natural gas. The issue there is that we need additional pipeline infrastructure inland to help get this natural gas to market. Same thing with coal, we need a more efficient railline system to get coal to market.
Ultimately, we either have to get energy prices high enough that you have permanent demand destruction and the supply/demand balances fall back in-line or people are going to have to come to grips that we are going to have to drill for oil and natural gas in politically sensitive areas, and people are going to have to allow us to build infrastructure in "their backyard".
Everyone forgets that it was only 4 years ago when we had $18 crude and $1.90 natural gas and gasoline and diesel were less than $1.25/gal...
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-HUMMERDOGG
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