Thursday, May 29, 2008

Oil Prices Are Dropping - Phew, we survived that...let's go back to normal now

So oil prices hit a record $135 a week ago, then they dropped back down to $127. No big deal. It went up a lot, but the markets just got excited.

Umm...just to be clear, we're talking about some topsy turvy behaviour that is still north of $120, and for that matter, $110. If this rollercoaster ride says anything, it is that the markets are now VERY volatile. By the way, just before they went down to $127, they went back up to $133 (from $130). This means there is a lot of tension pushing and pulling at that price.

Oil prices fall below $127 a barrel

A friend was also saying that since 65% of the UK oil price is comprised from taxes, the actual price of oil isn't even expensive. Exactly. Oil is still very very cheap. The prices producers are paid is still very little. So, you say, why can't we just remove these government taxes? 2 reasons:
1) because that would increase demand, which is exactly what we don't want to do.
2) because these fuel taxes are a primary source of income for government. Without them, most departsments would be crippled. What is happening in any event is while those taxes remain in place, economies are increasingly tipping towards recession as disposable incomes increasingly fail to achieve parity with these higher price levels. Thus higher fuel prices also begin to erode the income of entire governments.

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