Oil price spike: Speculators aren't to blame

oil price, wall streetInternational Energy Agency's chief economist says higher prices are here to stay, driven by demand that's exceeding supply. By Steve Hargreaves, senior writer

NEW YORK (CNNMoney) -- High oil prices are here to stay and they're caused by surging demand and limited new supply, not Wall Street speculators.

That's the message from Fatih Birol, chief economist at the International Energy Agency.

"Speculators are only responding to what is going on in the markets," Birol said during an interview with CNNMoney in New York. "We don't see enough oil in the markets. The major driver is supply and demand."

Birol said growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year.

Much of that new demand is coming from China.

China is adding nearly 20 million vehicles to its roads each year, he said, and is responsible for fully half of the world's demand growth. He noted the growth in China's oil consumption is equal to all of the new output expected from Iraq over the next few years.

Plus, countries that export oil are not doing enough to invest in new production, and countries that use a lot of oil are not doing enough to cut back.

This is not good news for American drivers, currently paying an average of nearly $4 a gallon at the pump.

"We have to learn to live with these higher prices," said Birol, who declined to say exactly how high oil will go. "They are here for a long time."

The International Energy Agency represents oil consuming countries like the United States, European nations and Japan. It was formed following the Arab oil Embargo in the early 1970s and is responsible for shuffling strategic oil reserves between developed nations during a time of crisis. It also conducts extensive research on world oil markets.

Some argue that the world has plenty of oil, it's just that it's trapped in shale rock, tar sands or other types of formations.

Birol said there are challenges extracting that oil, which include cost and environmental impact.

"There's a difference between having those reserves in the ground and having them at the gas pump," he said.

Birol's bleak view is not shared by everyone.

Other analysts say plenty of new production from places like Iraq and off the coast of Brazil should combine with sluggish worldwide economic growth to create an oil glut for at least the next few years. They place most of the blame for high prices on Wall Street and not soaring demand or price gouging from companies like Exxon Mobil (XOM, Fortune 500), BP (BP), Chevron (CVX, Fortune 500) and Royal Dutch Shell (RDSA).

Birol said there's not much U.S. politicians can do in the short term to lower oil and gas prices.

In the long term, he said the United States should focus on increasing its own domestic oil production and limiting consumption through higher fuel efficiency standards and better incentives for electric cars.

He indicated that limiting consumption is where the United States could make the most difference, as 90% of the world's growth in future oil production will come from North Africa and the Middle East.

"Oil will be more and more expensive unless countries like the U.S. and China use less," he said.

His biggest concerns:

  • An increased relationship between oil and geopolitics, and how the resulting higher prices will dampen worldwide economic growth.
  • How 1.4 billion people worldwide still don't have access to electricity.
  • And the world's inaction on global warming.

"The door may be closing to address climate change," he said. "The infrastructure [for clean energy] is not being built in the emitting countries."  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,713.39 35.49 0.21%
Nasdaq 4,463.17 10.38 0.23%
S&P 500 1,953.94 3.12 0.16%
Treasuries 2.25 -0.03 -1.27%
Data as of 10:52am ET
Company Price Change % Change
Microsoft Corp 45.71 0.69 1.53%
Ford Motor Co 13.99 -0.41 -2.88%
Apple Inc 105.07 0.24 0.23%
Bank of America Corp... 16.65 0.05 0.30%
Yahoo! Inc 43.08 0.48 1.13%
Data as of 10:38am ET


Regulators are about to reveal the results of an extensive health check of Europe's top 130 banks, indicating which may need a cash infusion. More

Tumblr CEO David Karp says he's still the boss after Yahoo's purchase, and he's happy with the progress the company has made so far. More

Using technology developed for the military and implemented in Iraq, schools have installed alarm systems that detect gunfire. More

Dressing up in crazy costumes, traveling the world, posing for photos -- and getting paid to do it. Here are journal entries from a day in the life of professional "cosplay" character, Linda Le. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.