I return...

So many people have recently asked me to continue blogging after an extended break. As I promised, I will return to the issue of oil and politics.

The price of oil (as measured in the markets per gallon) today and for the past several weeks has been hovering between 130 and 135 dollars per barrel. This is by far the most oil has been sold for, ever! As I mentioned in one of my earlier posts, there is an intimate connection between the price of oil and economy. This is because our Western economies run almost entirely on the use of oil- related energy.

I would briefly like to explain the long-term process that is happening in front of us today and hopefully by doing so I will allay some of our fears. Basically, cheap oil allows Western, industrialized nations i.e. the United States, Britain, German, China and Japan to buy and consume more oil. This fuels and sparks industry which is the basis for their economies. As expected, this causes economic growth and stability. However, the losers in this equation are the oil-producing nations who are essentially being "raped" for their oil. They are not getting full value for their product.

It must be understood, that most oil-producing nations have not developed any serious industrial infrastructure outside the oil business. They also have poor, traditional populations that are constantly growing beyond their means. Oil-producing countries are thus strapped for cash. As the oil consuming nations continue to grow at the expense of the oil producing nations, a volatile situation is created where the oil producing nations want to close the ever-widening gap between them and the industrial nations. Their method is to raise the price of oil.

It is not that they literally set the price of oil, as would a store-owner. These nations belong to OPEC, a group of the largest oil producing states. Together, they control of the price of oil by limiting production. If there is less oil in the markets, then the price naturally rises.

Now, as the price of oil rises and rises, the industrial nations can afford to consume less and less. Eventually, the price reaches a certain point and the economies of the oil consuming nations almost reach a standstill. Recently, we have witnessed telltale signs such as the price of gas in America rising above $4 and riots in Spain. What traditionally happens at this point in time, when consumption radically drops, the price of oil plunges. Then the whole process repeats itself: Low prices induce Western growth until the gap must once again be closed and so on.

It is important to note that each time the price rises and drops, it never falls to its original price. Thus, despite this process, the price is indeed on a continuous climb.

To summarize, the prediction of my professor is that the price of oil will not rise above the 140 line. What this means is that imminently, the price of oil should drop and, although it will not return to the 60 dollars per barrel that it was not so long ago, it might drop to the 80-90 range.

I hope that I was concise and understood in explaining some of the recent processes. There are several other factors that determine the price of oil. Please feel free to comment or email me with questions or responses.