The sky is falling.
The rise in oil prices is not due to a single factor, or even a group of related factors. It's a confluence of varied factors - many of which are not even market related.
Oil is not a commodity - it is artificially controlled by OPEC. So the "supply & demand" argument is only partially true. Demand is market driven, supply, however, is OPEC controlled.
Oil is traded on the international market in US Dollars. Normally, this is a favorable situation for us. With the dollar in a slump against most major international currencies, the price of oil seems higher than it really is. Instead of pricing oil in dollars, why not compare it to a relatively stable currency like gold - an ounce of gold buys about the same amount of oil now as it did fifty years ago. But did you notice that gold is up over $900/oz now?
The US imports anywhere from 25-40% of our oil. We have more than enough capacity to produce 100% of our oil. Why do we buy foreign oil? Many reasons - oil purchases are often politically driven. Our buying power (as weakened as it is with a soft Dollar) is a huge political tool and instrument of national power. We broker deals to purchase oil from countries in exchange for a variety of things - security, trade, tariff reduction, political influence, etc. We even pay premiums - (ie - cost + x%) when we're desperate to influence someone. Despite China's recent gains in consumption, we still are the world's leading consumer by a wide margin - probably 3-times that of China. This will change, but not real soon. This means we should have buying power, but we don't because of OPEC & our desire to use oil as an instrument of strategic political influence.
Another reason, and this is pure speculation on my part, but the circumstantial evidence supports it, is I believe the US strategy is to be the last country standing with its own oil. We drill & cap wells all over the southwest, gulf, alaska, etc. We run wells & pipelines at bare minimum capacity to keep them viable. The AK pipeline runs about 30-40% of capacity - not due to a lack of oil in AK, but that's how much it takes to generate the profit to maintain the oil line. We also sell almost all of the AK oil to Russia & Japan - we sold to Russia throughout the cold war too - despite the fact Russia sits on huge oil reserves of their own.
There are huge reserves of oil locked up in areas where it hasn't been economically feasible to extract it - shale, coal sands, tar, etc. The norther tier states (primarily N. Dakota) sit on the Baaken oil reserves - potentially as large as the fabled Saudie oil fields, but it's more difficult to extract.
There are more huge reserves in areas we "don't want" to go get right now - Alaska, Gulf of Mexico, Everglades, etc. We have lots of oil.
We import a huge percentage of our foreign oil from S.America (Mexico, Venezuela, etc), not necessarily from the Mid-East, although it varies year to year (see above about political motivations).
If oil were a true commodity traded in a free open market in the buyer's currency, I don't think oil would be trading at $140/bbl - I think it would be about half that.
The Democrats approach of taxing the oil companies' profits is the stupdiest thing I've ever heard. The oil companies are not making profits on markup as much as they are on volume and percentage increases in the price. If their markup is 3%, but the cost of a barrel doubles, the 3% markup doesn't change, but the final dollar amount sure does. Do we penalize them for factors they do not control? That's short-sighted at best and dangerous at worst.
Both Republicans & Democrats have called for a moratorium on gas tax - that's another equally stupid idea that is 100% politically motivated to show "we're doing something" - doesn't matter if it's something that means anything or not...
The real embarrassement is that the US leads in consumption & not efficiency. With the resources this great country has, you'd think we could figure out ways to be more efficient...and lead the world at doing so.
We've been pampered with relatively cheap gasoline for so long that reality is painful.
EDIT: Found this posted on another forum:
This article is from 2007 Gas is still much cheaper today as a percent of income compared to 1980 or 1981. To be as expensive as gas was in 1980-1981 gas (as a percent of income), prices today would have to get all the way up to $4.62 per gallon. Pumping more oil is not the answer using less gas is the only answer My truck burns 17 mpg I have a boat that burns 30 gallons an hour, I dont complain about the price of gas because like most of us I am a gasaholic and I know that as much as it costs our gas is still the cheapest in the industrialized world.
http://bp2.blogger.com/_otfwl2zc6Qc/RlX8D64kMCI/AAAAAAAABbc/ZQVlScrmmwA/s1600-h/gas.bmp(click link to see chart)
According to the Energy Information Admininstration (EIA), the highest average monthly gas price in the early 1980s was $1.417 per gallon in March of 1981, which in today's dollars is $3.22 per gallon, which also according to the EIA is the average retail cost of gas today.
However, gas prices as a percent of income are still way below the early 1980s. In both 1980 and 1981, 1000 gallons of gas at the average price cost 14.1% of per-capita disposable personal income in those years. Gas prices averaged $1.245 and $1.38 in 1980 and 1981 respectively, and per-capita income was $8,822 and $9,765 in those years (see chart above, click to enlarge; source for Personal Income is Bureau of Economic Analysis, Table 2).
Gas is now selling for an average of $3.22 and per-capita disposable personal income in March was about $33,000, so that 1000 gallons of gas now costs 9.76% of per-capita personal disposable income (see chart above, click to enlarge).
Bottom Line: Gas is still much cheaper today as a percent of income compared to 1980 or 1981. To be as expensive as gas was in 1980-1981 gas (as a percent of income), prices today would have to get all the way up to $4.62 per gallon.
Reason: Gas prices have increased about 2.5X since 1980-81, but per-capita personal disposable income has increased by about 3.5X during that same period.
AND FOUND THIS:
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/points/stories/DN-jeffrey_08edi.ART.State.Edition1.4646f8a.html