4.10.2008 7:50 AM

Oil Holding at Record High

Supply, Demand and Peak Oil

Comments

Photo: Andrew Penner / Istock

By Dan Shapley

The price of crude oil hit another high Wednesday, $112.21, and held there in early trading Thursday, according to Forbes.

The latest price spike is being blamed on a surprising shortfall in U.S. stocks.

"U.S. crude oil inventories fell by 3.2 million barrels in the week to April 4, the DoE said yesterday, against expectations for a rise of some 2.5 million barrels," Forbes reported. "The department added that gasoline supplies fell by 3.4 million barrels, while distillates dropped by 3.7 million barrels, both declining by more than analysts had expected."

The forces that drive the price of oil and gasoline are complex, but at their heart come down to supply and demand. Demand for oil remains high, despite the U.S. economic downturn, in part because of skyrocketing demand in China and other developing nations. Supply is a controversial point. Some say that we are pumping just about as much oil as is possible, and that there won't be much, if any, additional significant oil reserves tapped to replace the oil being lost. If that peak oil scenario proves true, $112 a gallon may seem like a bargain in the years to come – unless viable alternatives are developed, or demand slackens.

COMMENTS ()