Paper Summary:

This paper provides a market and behavior analysis for the oil industry for the years 2006 and 2007. It specifically looks at the factors that determine prices, particularly supply and demand and increasing speculation on the part of investors which are more diverse than traditionally. The paper includes graphs to demonstrate its explanations.

Table of Contents:
Introduction
Supply and Demand Analysis
Price System
Barriers to Entry
Government Involvement
Summary and Conclusion

From the Paper:

"It is clear that stockholders and investors have the power to create great instability and volatility in the oil market through speculative practices of investment that create concern on the part of other investors and may result in volatility and the dumping of stock at precise times in order to make a profit in the area of oil investments. Oil prices at the present are not unprecedented and there are expectations that while oil prices will go down, in the meantime the status quo will remain. Lowering production rates, speculative investing, global weather and climatic changes all work toward impacting the stability of prices of oil and increasing volatility. While supply has the capacity to meet oil demand, simultaneously the quantity of supplies have been limited in an action that has ultimately been driving up the prices of oil and most particularly in the United States. Insofar as future predictions, oil prices are expected to rise even higher in 2008 with increased demand for oil and limited supply, although it is understood that this limitation of supply will be due to choice on the part of oil producers and not due to a true limit of supply of oil."

Sample of Sources Used:

• Johnson, Toni (2007) Oil Market Volatility. 10 Dec 2007 Council on Foreign Relations. Online available at: http://www.cfr.org/publication/15017/
• Krapels, Edward N. (2007) Financial Energy Markets and the Bubble in Energy Prices: Does the Increase in Energy Trading By Index And Hedge Funds Affect Energy Prices? Testimony Before a Joint Heating of the U.S. Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security and The Governmental Affairs and the Subcommittee on Energy of the Committee on Energy and Natural Resources. 11 Dec. 2007 Online available at: http://hsgac.senate.gov/_files/STMTKRAPELASEdward.pdf
• Caruso, Guy F. (2007) EIA Short=-Term Energy and Winter Fuels Outlook. Energy Information Administration. DOE/NASEO 2007/08 Winter Fuels Outlook Conference 9 Oct 2007. Washington D.C. Online available at: http://www.eia.doe.gov/pub/oil_gas/petroleum/presentations/2007/winterfuels2007/winterfuels2007_files/frame.html
• Levin, Carl and Coleman, Norm (2007) Excessive Speculation in the Natural Gas Market. United States Senate Permanent Subcommittee on Investigations- Committee on Homeland Security and Governmental Affairs. June-July Hearings 2007. Online available at: http://hsgac.senate.gov/_files/062507Report.pdf
• Dahl, Carol (2007) What Goes Down Must Come Up: A Review of the Factors Behind Increasing Gasoline Prices, 1999-2006. April 2007. Online available at: http://www.api.org/aboutoilgas/upload/INCREASING_GAS_PRICES_PAPER_2007_HI.pdf

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