Higher Airfares, Gasoline Prices, and Shipping Costs Driven by Demand or Speculation?

An interesting question was posed Yolisto. Increasing Airfares for Delta and Aeromexico

Several posters offered ideas about why airfares have risen. A regular contributor Lynette offered the following comment and link: “And here’s a real reason … Oil Price Increase Is Being Driven By ‘Gamblers Wearing Wall Street Suits’ ”

This seemed odd to my understanding of how world oil consumption (temporarily depressed by the worldwide recession) has recently surpassed typical worldwide oil production capability.

I did a little research on world oil consumption since 1997, and found some inconsistencies between reported data and the article Lynette offered. I attempted to post the data on Yoliso, but my reply was deemed unsuitable for Yolisto and their administrator suggested I post it on Yucalandia – so, here are my thoughts on:

Rising Airfares, Rising Gas Prices, and Rising Shipping Costs (et al)
Driven by Demand for Oil or Wall Street Speculators?
Oil prices and the prices for items using lots of petroleum products can be pressured upward, when oil consumption exceeds oil production. When sustained excess demand uses up stored oil reserves, then oil prices rise sharply, without the effects of speculators. These factors lead to different conclusions than the Think Progress author’s opinions (see link above).

The Think Progress report says that they base their analysis of the cause of recent oil price increases on a premise that we are using less oil than at any point since 1997:
~   ~  “ …(oil) demand is the lowest it’s been since April, 1997, … ”

By claiming that oil demand is, and has been low, the Progressive reporter then claims the higher prices are due solely to speculation. Has either the US or world oil consumption peaked in 1997, and has usage has been lower since then, especially as the Chinese, Indian, Brazilian, Russian and Mexican economies had huge growth over the past 15 years?

Here are the US Govt and the OECD official figures for oil consumption in Millions of barrels per day:

Year – US Oil … & World Oil Demand:
1997 – 18,620 … 73,436
1998 – 18,917 … 74,079
1999 – 19,519 … 75,791
2000 – 19,701 … 76,772
2001 – 19,649 … 77,512
2002 – 19,761 … 78,160
2003 – 20,034 … 79,722
2004 – 20,731 … 82,511
2005 – 20,802 … 84,105
2006 – 20,687 … 85,255
2007 – 20,680 … 86,288
2008 – 19,498 … 85,776
2009 – 18,771 … 84,337
2010 – 19,289 … 86,596

2011 – 19.806*… 89.575* *est

Why?
As the US, Chinese, Mexican, Indian, and European economies grew between 1995 – 2008, briefly retreated during 2009-2010, and rebounded, their 2011 oil consumption passed the world’s normal daily production capacity of 88 million barrels per day.

When oil consumption exceeds oil production, and when that excess demand uses up stored oil reserves, then the price rises, without the effects of speculators – which has happened over the past months.

Fortunately for oil prices, oil production has been growing in the US since the initiation of horizontal boring and fracking in 2005. Those US wells started in 2005 – 2008** have increased US domestic oil production and gas production to the point that the US is projected to be energy neutral in 2013.

Still the Chinese and Indian and Brazilian economies will continue to grow – with 10’s of millions of poor people in those countries shifting from low-energy-use poverty instead into high-energy-use middle class lifestyles – which will likely drive worldwide oil demand even higher, causing further increases in the world-wide oil prices?

Airline prices will continue to rise if oil and jet fuel prices continue to rise due to demand exceeding supply.

Finally, excessive speculator activity on top of the basic shortfall will add further pressure to prices, but I think the main driver in the recent hikes is explained by demand exceeding supply. It’s fun to blame things on Wall Street and a lack of regulation, but this time around there is hard data that points to continuing excessive oil demand ultimately driving up Airline ticket costs.

What do you think?

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**Has anyone else heard that the Bush approved rule change that permitted all the new freaking fracking activity is likely causing many man-triggered earth quakes?? The USGS says that the fracking in itself is not the problem, but the energy companies are taking all the fracking wastes and pumping them back into deep deep wells – for disposal – which is causing record numbers of earthquakes in the range of about 3.5 to 4.5 . ghastly…. yet another bit of a growing Bush legacy?

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Disclaimer: This information is not meant as investment or legal advice. It is for educational and informational purposes only. Government policies vary between States and offices, and Mexican Government officials have broad discretion in how they individually enforce policies, so, your personal experiences may vary. See a professional for advice on important issues.

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© Steven M. Fry