A year ago oil peaked at $147 a barrel, when most oil trading volume came from speculators. Certainly then, as now, the economics 101 explanation for oil prices -- that prices should rise if demand exceeds supply -- made no sense. And now, with oil having nearly doubled since the beginning of 2009 from $33 a barrel to $62, supply and demand offers no explanation for the rise in oil prices.
How so? Daily U.S. supply in 2009 is expected to exceed demand by 0.92 million barrels per day. There are oil tankers full of oil moored in the Gulf of Mexico as the global recession that has removed 6.5 million jobs from the U.S. economy drags on. U.S. demand is forecast to be down 0.65 million barrels per day (mm-bpd) in 2009 to 18.85 mm-bpd while U.S. supply is expected to end 2009 up 0.28 mm-bpd to 8.78 mm-bpd. So based on lower demand and higher supply, it would make sense to see a drop in oil prices.