What mainly drove up oil and gasoline prices in 2008?

29-Dec-08

Oil prices peaked to US$147 per barrel in July 2008, and slid to less that US$40 in December 2008. When oil hit a record $147 a barrel in July, speculators were blamed as the culprits, as their investment dollars increased price volatility to an extent that price of a barrel of oil moved up by over US$110 in just six months. What mainly drove up oil and gasoline prices were supply and demand, the same basic forces that have caused the plunge since July. The worst economic crisis since the Great Depression has greatly reduced demand for fossil fuels -Americans are driving lesser and China and India have controlled their appetite for petroleum. Before the global economic meltdown, the markets assumed that demand for oil from China and India would outstrip supply from the ageing fields. The situation is so grim that oil prices fell almost 28% in the 3 days after OPEC announced to trim total daily output by 4.2 mln barrels at the start of next year. Several analysts feel that oil will stay between US$25-50 a barrel, and gasoline could touch US$1 a gallon. As hedge funds and banks can no longer borrow money at low rates to speculate on energy, it will limit the extent to which oil and gasoline prices can swing.