$100 per barrel?

As we went to press, crude oil prices had topped $95 per barrel. As recently as 1999, crude oil was selling for less than $11 per barrel. What happened in the last nine years to cause oil prices to escalate more than 800%? There is no single answer to this question. Some of the more common reasons given by analysts include large increases in demand from developing countries such as India and China, the weakening of the U.S. dollar and increasing tension in oil producing areas.

Another factor is the escalation of activity by speculators in the petroleum futures markets. Petroleum futures are pieces of paper that represent hypothetical delivery of petroleum products in the physical market. Virtually all futures contracts are cancelled without ever taking delivery of the product. These futures contracts are nothing more than financial instruments that are traded by hedge funds and other speculators. Despite the fact that they have little relationship to the physical market, futures contracts have a major impact on the price and volatility of the petroleum products we use every day. Stephen Brown, Director of Energy Economics at the Federal Reserve Bank of Dallas, recently said that he believes $10 or more of the current price per barrel of crude oil is “froth” driven by speculators rather than true supply and demand issues. Above is a graph that shows the price of crude oil on the New York Mercantile Exchange from 1998 to present.

Somewhere in the world, someone is making a lot of money from these high oil prices, but it's not Hart & Iliff. Our margin per gallon remains the same regardless of the price. We much prefer moderate prices to keep our customers happy and our costs and receivables low.