Paying at the Pump

Crude oil has hit an all time high of $129 a barrel, up 165% in three years. The effect on the economy of high oil prices is both deflationary and inflationary. High oil prices acts as a confiscatory tax on consumers who must spend more of their finite dollars on energy. Petroleum products are a component of a myriad of products including food, and the increased cost of production and transport is passed down the distribution system in higher prices. Demand, especially from emerging markets such a India and China, continues to grow by more than 1% per year while the rate of increase in supply is slowing. Ageing fields where extraction is cheap are already observing output reductions. Its significant that the Charlatan's request for more production from his Saudi friends resulted in a mere 300,000 barrels a day more. The market considered that increase insignificant. Some analysts say peak world production has already been reached while others think production may plateau for some time while more costly fields like the discovery in the deep southern Atlantic off Brazil are brought online. Another factor in the high price of oil is the weak dollar which has devalued 40% in the past year. This condition has led commodity speculators to rush toward oil as a good hedge. $200 a barrel oil is on the horizon. Got a bike?