OPEC’s Saudi Arabia increases oil production but petrol prices at the bowser continue to rise.

Reports were out today that oil prices eased after top OPEC crude producer Saudi Arabia agreed to increase production “not wanting to be blamed for the impact of soaring prices.” Then this from the Sydney Morning Herald at 11.12PM:

“The price of crude oil struck a record high point of 139.89 US dollars a barrel on Monday even as Saudi Arabia is said to be preparing to increase output. New York main oil futures contract, light sweet crude for July delivery, beat its all-time high of 139.12 US dollars recorded on June 6.”

This underlies the real dilemma facing world governments, that the solution to the fuel problem, one of supply and demand, is out of their hands. Even with this increased production the price at the bowser is not expected to fall but to rise further as the costs of transporting the oil will not fall.

Over the last few weeks the Australian media has been full of shrill criticism of the federal government as the petrol prices have soared. The pain in the community has been palpable and the latest Nielsen poll, published in The Age today, found 56% of voters were dissatisfied with the way Mr Rudd was handling the petrol problem, while 78% wanted the government to take action to bring fuel prices down. The opposition proposal of a cut to the fuel levy would do little more than put a hole in the surplus and stimulate further inflation rises. Most people want some action but the population appears to be split on whether Mr Rudd can actually affect change.

Expectations of a fall in world economic growth have heightened and the prospect of stagflation has been predicted for the US economy as the dollar weakens and oil prices rise. The demand for fuel is being pushed along by the growth in the emerging economies and the days of cheap fuel no doubt are over.

The question is whether the oil producing nations will hold back production to maximise profits or whether they will just speed up the sales of oil to maintain the price. Either way a substantial drop in price cannot be foreseen any time soon.

People want easy solutions and the dropping of taxes seems like a good option but will this be unsustainable and cause deficits in other areas of the economy when funding problems then arise? Any real gain is then eaten up by inflation.

It is time for people to face reality. We do not operate in a vacuum but are part of a globalised world with problems that need global solutions. The media needs a reality check too. Their constant carping is doing little but fuelling people’s expectation that there are easy pain free solutions to the fuel crisis and this is unrealistic under the prevailing economic conditions.

PHOTO OF THE DAY:

Iceberg in the Ross Sea.

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~ by abstraktbiblos on Monday, 16 June, 2008.

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