Oil is a global product distributed by global, multinational oil companies. It is a commodity like other commodities, traded on the market. That is how price is set. Where you get your specific oil from often depends on geography and shipping costs, though there are many additional tweaks to the system. For example, the sour crude you get from Venezuela or Nigeria requires refineries set up to process the extra sulfur.
But, that doesn't mean that Middle Eastern oil isn't critical to the US economy. There is X amount of production, X amount of reserves and X amount of demand. Curtailing supply, either artificially or naturally leads to higher prices at the exchanges. Dumping excessive supply or a drop in demand has the opposite effect.
Currently, demand is up internationally and we are still actually seeing a demand driven strain vs. an artificial production driven strain. Though that may be transitioning now as production has been cranking up. US production is actually pretty high, but...
Where reserves are concerned, the US as a whole has less than any number of individual Middle Eastern oil fields. So, we are draining our reserves dry at a record pace. And, the Middle Eastern countries, which are economic one-trick-ponies have a legitimate concern over maximizing their profits, but balancing extending their reserves and not allowing prices to climb so high that long term behavioral changes develop among customers that would reduce demand.
Of course, should we hit a major recession then demand will crank down and the speculators will sell short and oil will be back to $50 per bbl.
BTW, the CEO of a Northeaster-based regional oil company sent me an interesting chart that shows a direct correlation to our most recent, dramatic increases in the price of a bbl of oil and the drop in the value of the dollar. Almost spike per spike, and valley per valley. He estimates that the devalued dollar accounts for $25 per $100 bbl, and noted that other countries do not see nearly the same economic impact from this increase.
Charon
