Oil Crisis

One of the major reasons for oil price increases according to most financial analysts is the lowering of oil supply and the rising of oil demand in many parts of the world. When you combine political unrest in places like Nigeria, lowering of production in places like Saudi Arabia and increased demand in places like China and India, it doesn’t become difficult to predict what might happen to oil prices. Add to that a weakening American dollar and the effect is just that much more pronounced.

Well, let’s examine the supply connection to see just what is going on. Strikes and political unrest in Nigeria have resulted in the country’s oil production falling by 251,000 barrels per day, which is not an insignificant amount when compared to the rest of OPEC, which is responsible for roughly 40% of the world’s oil exports. Overall, OPEC’s production in April was down about 390,000 barrels a day, which shows you just how significant the situation in Nigeria was. Even Saudi Arabia, the world’s largest exporter of oil, saw their supplies dwindle by around 40,000 barrels per day.

With President Bush’s recent trip to Saudi Arabia, the country has agreed to increase their production by 300,000 barrels a day immediately in order to help offset the increased cost of oil. Furthermore, they have made a commitment to boost their capacity to 12.5 million barrels a day by the end of the year. This would represent a massive increase from their current 9 million barrel production capacity and many analysts are hoping that will put a dent in oil prices when 2009 rolls around.

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