Crude oil prices is hoovering around $110/barrel - this does not essentially reflects changes in fundamental demand & supply of oil. There are some exiting news about oil supplies - global oil production had stagnated over the last few years, but January 2008 data finally show a new all-time high quantities produced worldwide.
With Energy Information Administration (EIA) also forecasting an increase in global oil production in 2008-09 after a series of dull years in oil production output.
So the million dollar question is - than what is driving the Oil prices so high? The explanation is: we're seeing similar increases in the price of virtually every storable commodity since start of 2008. The 12% increase in oil prices this year closely follows the median increase in other important commodities graphed below. Thus we are looking for a single explanation behind the common behavior, rather individual theories.
We can't attribute all the increase in commodity prices to the decline in dollar. The dollar depreciated only 7% against euro in 2008, which is less than the price increase in nearly all commodities. Also, pretty surely, there is no big surge in demand for commodities which can push prices us, as we have been hearing of global slowdown last 3 months.
Instead, high oil prices just like all other storable commodities, is primarily a response to the Fed's decision to move 'real' interest rate into negative territory. High commodity prices is merely reflecting an expectation that Fed may further cut fed interest rates to 2% at the meeting at the end of this month. If Fed shocks the market by keeping rates steady at 2.25%, all those commodities will begin to crash within hours of the news.
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