Oil prices are entering a stage where they are almost bound to rise sharply. the price is near $107 again today. OPEC indicated that it would have no meetings on supply until September. Several ministers to the cartel have said that they feel $100 plus oil prices are due to speculation and a poor economic policy in the US. The fact that they are making tens of billion of dollars on the higher prices does not seem to enter into their equation.
China has also approached Nigeria about a $50 billion economic package for the African country. Since China has no equivalent to the Peace Corp, it is likely that the deal is to secure oil rights that might have gone to the pool of countries which includes that US and Europe. Taking some capacity "off line" and funneling it to one country should have the net effect of raising prices.
Bernanke and Company have also signaled that they may cut rates again. If so, traders will assume that the US economy could turn up toward the end of 2008 driving up demand for crude.
The rising in oil prices will be exacerbated by increasing demand in developing countries like India and the most modest increases in refinery capacity.
The hope for easing cost for crude are getting smaller each day.
Douglas A. McIntyre
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