Opinion

Who to blame for rising oil prices? Here's speculation.

Russia's Alexander Novak and Saudi Arabia's Khalid Al-Falih hold an OPEC news conference last month.﻿ Russia's Alexander Novak and Saudi Arabia's Khalid Al-Falih hold an OPEC news conference last month.﻿ Photo: Ronald Zak, STR Photo: Ronald Zak, STR Image 1 of / 6 Caption Close Who to blame for rising oil prices? Here's speculation. 1 / 6 Back to Gallery

You are paying about 40 cents more a gallon for gas than you would if the oil markets were behaving rationally.

Lucky for Houston oil companies they are not.

The law of supply and demand is broken in all things petroleum. Speculators are propping up prices citing geopolitical expectations that are not coming true. And it's costing the American consumer.

If I wanted to be fashionable, I'd blame the whole thing on foreigners, specifically the oil ministers who run the Organization of the Petroleum Exporting Countries. The group and its allies promised to take 1.2 million barrels a day off the global market to soak up the current glut and drive up prices.

If I'm being honest, though, it's the oil traders that are truly at fault. They didn't wait to see if OPEC's plan would work, instead they took it as gospel and immediately drove up prices to more than $52 a barrel, double what we were paying this time last year.

The latest data, though, shows that the OPEC cuts are not working. Oil, gasoline and diesel inventories are all higher than they were this time last year, when prices were much lower and more accurately reflected the supply and demand picture.

The Energy Information Administration reports that U.S. crude oil stocks rose 6.5 million barrels to 494.8 million barrels in the week that ended January 27. A normal build this time of year is 4.9 million barrels.

And refined product inventories are also up since OPEC struck its deal.

"U.S. gasoline stocks rose 3.87 million barrels last week to 257.1 million barrels. That was greater than the 300,000-barrel build that analysts had expected," said S&P Global Platts, which tracks petroleum data. The total inventory is 15 percent higher than the five year average.

To sum up, U.S. inventories of crude, gasoline and diesel have increased by 49 million barrels despite OPEC's cuts.

If the market was working, oil should be $26 a barrel, not $53. And instead of paying $1.79 a gallon for gasoline, we're getting charged $2.21.

But analysts remain committed to the $50-$55 range, arguing that OPEC's cuts will eventually shrink supply. The price is anticipatory, not based on current events.

If they were being realistic though, they'd be anticipating lower prices. They are ignoring the rising number of drilling rigs operating in West Texas. They didn't notice the shale oil companies spending $9 billion to buy land in the Permian Basin in January. The don't care about EIA's prediction that Permian output will rise 15 percent this year.

Oil traders are also choosing to ignore the fact that OPEC members raised their production by 1 million barrels in the 10 months before they agreed to cut a 1.2 million barrel a day. The OPEC deal that trader love is really just a cut back to where OPEC was in January 2016, when oil was nearing $26 a barrel.

Making matter worse, demand remains sluggish, growing only 1.9 percent year over year in January.

"If last year's surge in gasoline inventories to start the year was a worrying sign for the market, then this year should be no different," said Anthony Starkey, manager of energy analysis, Platts Analytics, the forecasting and analytics unit of S&P Global Platts.

And if this sounds like oil prices are sitting on a bubble, you'd be right.

"The speculators are certainly in control, with any attempt to try and short the market short lived. However, their ammunition is running a bit thin," Starkey said. "With each passing day, the market nears a precipice."

While the inflated price for gasoline has hurt consumers, the higher oil prices are a lifeline to struggling oil companies. They can sell futures contracts for their oil at these higher prices and guarantee future income. It's hard to say whether this is a net gain for Houston, even though so many oil companies are based here, because almost all Houstonians buy fuel.

One thing is certain. These prices only make sense if production really does drop this month, and we see inventories go down significantly. So far, there is no reason to believe that is going to happen any time soon.

And we all know what happens when bubbles wear out.