If ever one wonders just why the price of oil can change so rapidly and by so much, a quick look at the day’s news is probably enough to find a large number of possible answers.  Medium- to long-term demand and supply projections clearly have an important role to play in driving an approximate baseline price (especially with the power that OPEC is able to assert over the market as a whole), but the fluctuations are so often a result of the stories we see and hear every day.

Consider today—February 10, 2010.  A huge snowstorm over the U.S. Northeast initially pushed prices upwards, but surprisingly large U.S. inventories of oil and gasoline pushed it back down.  OPEC reported that oil demand would rise by 810,000 barrels per day this year, down 10,000 barrels per day from its previous forecast.  On the ‘upside’ for oil prices, Iran said that it would begin enriching uranium to 20 percent, raising tensions with the international community.  While relatively small on a global scale, an attack on the Kirkuk pipeline south of Baghdad immediately took 50,000 barrels of oil per day offline, an amount that Iraq will likely need to procure from world markets while repairs take place.

So whether it is geopolitical tensions, terrorist attacks, inclement weather, variable economic growth forecasts, or even company earnings data, the price of oil is affected.  The major concern of course is the damaging effect that our dependence on this oil and the products that we use it for causes.  This damage is further exacerbated by high and volatile prices (the recent recession, coming on the heels of record oil prices is a prime example).  We need to pursue intelligent and thoughtful solutions that can put our economy on the path to a much more secure energy future.

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