Notes: Oil prices surged to a record high of over $40 a barrel during the week, and Americans are complaining about the prices at the gas pumps. However, if you adjust for inflation, prices have been higher before. Regardless, prices are high.

OPEC is meeting informally in Amsterdam over the weekend to discuss what to do about prices. Saudi Arabia has stated that it will add 1.5 to 2 million barrels a day to the supply (though there is a question about whether the oil is of a quality that will be used for gasoline).

What caught my attention about the oil-prices story is the theory that at least one reason for the high prices is not a shortage of oil, but instead the so-called "fear factor" or "risk premium." Under that theory, traders in oil futures have artificially ramped up the price of oil because of the fear of terrorism in Saudi Arabia and Iraq interrupting the world flow of oil. In other words the thought becomes the reality even though there is no real shortage. Isn't that exactly what terrorists want?

There, of course, is a high demand for oil right now based on economic growth in China and Asia and previous cutbacks in production by Saudi Arabia haven't helped. Still in a report carried in Yahoo news Asia from Agence France-Presses, the Qatari Energy Minister Abdullah Bin Hamad Al-Attiyah is " ... adamant that the high prices were caused by political fears and not a shortage on the market."

The AFP report quoted Attiyah as saying, "The fear factor is adding eight dollars to prices. I checked with all our lifters and end users and asked one questions [sic] : do you fee there is a shortage of oil? Their answer is no." AFP added in the piece that "Analysts have listed terrorism fears in Iraq and Saudi Arabia and rising global demand as the main reasons for the price spike."

Meanwhile, George W. Bush is filling the strategic petroleum reserve and refuses to divert any of that into the market. But he can't resist playing politics and blaming failure to drill in the Alaska wildlife refuge as the reason for the shortage. My understanding is that neither the drilling nor the releasing the reserve oil would have significantly affected prices. Regardless, there are credible people who do not think we should not draw on the strategic oil reserve, while others -- including John Kerry -- are calling on Bush to do so. 05.23.04