The Secret to Sky-High Oil Prices: Cheap Fuel
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The price of oil, now nearing $130 a barrel, is being driven up by subsidies on cheap petrol and diesel, according to a report by Reuters.
China, India and other nations that subsidize cheap petrol and diesel may be even less willing to raise prices than they were six months ago, aiding crude’s ascent toward $130 even as demand deteriorates elsewhere.
While Indonesia appears set to raise prices as soon as this week, the world’s fastest-growing oil users show little inclination to tackle their subsidy schemes, as fighting food-fueled inflation has become their top priority.
That’s bad news for oil consumers in the rest of the world, who face record crude costs partly as a result of demand growing unchecked in countries where pump prices have barely risen since the middle of 2006 — when crude was in the $70s.
Even as the fiscal burden of subsidies mounts with each new record high on the NYMEX, two things have changed in recent months to stay policymakers’ hands, for now.
The least harmful and most clean-burning fossil fuel, natural gas, is shooting up in price, too, says Justice Litle in Taipan Daily.
“The North American continent (both the U.S. and Canada) has been “running to stand still” for a long time now in terms of natural gas production. The rate at which new wells are coming on line is barely keeping pace with the depletion of old wells. And nor does it help that nuclear plants are looking a lot more expensive than first realized, or that natural gas and water are required in huge quantities to unlock the black treasure of Canada’s oil sands.
“As a result of these and other factors, the time has finally come for the liquid natural gas (LNG) market.”