There is No Oil Shortage

So why are gas prices so high? High international oil prices are bad news for everyone–even for oil-producing countries. People who have to pay $4 for a gallon of gas don’t have money to spend on other things, and eventually even gas consumption goes down, as people turn to other modes of transportation. For a long time, it was assumed that Middle Eastern countries were keeping prices high because they didn’t gave much oil left, but Saudi oil minister Ali Naimi says that isn’t the case–there’s plenty of oil.

In the March 29th edition of the Financial Times, Saudi oil minister Ali Naimi says that the high cost of oil is "an unsatisfactory situation and one Saudi Arabia is keen to help address. In an interconnected world, European economic growth is in our national interest. No one benefits from a stagnating European economy and we want to do what we can to help encourage growth. It is clear that geopolitical tensions in the region, and concerns over supply, are helping to keep prices high.

"It is the perceived potential shortage of oil keeping prices high–not the reality on the ground. There is no lack of supply. There is no demand which cannot be met. Total commercial stocks for OECD nations are within target, and there is at least 57 days forward cover, enough to handle almost any eventuality."

Naimi says that the idea that there is, or could be, a shortage is a "myth. It is an irrational fear, a fear without basis. Saudi Arabia’s current capacity is 12.5 million barrels per day, way beyond current levels demanded, and a reliable buffer against any temporary loss of production. There is no rational reason why oil prices are continuing to remain at these high levels."

This still doesn’t explain the high cost of gas. Are oil companies exploiting fears about the Middle East, figuring that they can get away with jacking up prices at the pump? When we learn more, we’ll let you know.

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