"Why Oil Prices Aren’t Going Down"

From the R-Squared Energy blog:

I saw a humorous story a few days ago:
Oil Should Be Around $10 a Barrel

The price of a barrel of oil would be closer to $10 if the commodity wasn’t traded as an investment instrument, given the record-high levels of U.S. oil inventories, Peter Beutel, president of Cameron Hanover, told CNBC Monday.

“I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn’t be anywhere near where it is,” Beutel said.

First off, the cost of production for most producers is significantly higher than that. The easy, cheap oil is gone. That’s why we are drilling a mile deep for oil in the Gulf of Mexico. But the other reason that oil prices aren’t going down soon is because demand has been recovering. Courtesy of the EIA:

U.S. Petroleum Demand

That shows that petroleum demand has been steadily climbing for a year, and has recovered to levels last seen two years ago....MORE