Making Sense Of The Oil Mess

(CBS)  A Reality Check by CBSNews.com's Christine Lagorio.

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American drivers in some areas are seeing pumps run dry. Others are forking over more than $3 per gallon of gasoline — the pumps have returned to post-Katrina prices, with crude oil barrels briefly reaching a record high of $75 Friday.

News of the price surge is accompanied by an often-baffling barrage of futures, stock figures, utilization percentages, inventory comparisons, consumption rates and the stock market's reaction to all of that.

Amid this confusing fog of numbers and statistics, a couple of simple facts stand out: Oil stockpiles in the U.S. are hovering at an eight-year high and the post-Katrina price shock is long gone. So why are gasoline prices skyrocketing?

"It's very odd," said Morris Adelman, an emeritus professor of economics at MIT. "But if you credit people with some sense of the future, then it's not odd at all."

Global fears and gloomy predictions that often lack a soild factual foundation drive up prices, market analysts, economists and scholars tell CBS News.com.

Apprehension about instability in oil-rich nations – including al Qaeda attacks on Iraq's pipelines, fears that Venezuela will nationalize its oil industry and friction between the U.S. and Iran - combined this week to drive up the price of oil.

Also in the global fear matrix were rebel attacks on foreign oil companies in Nigeria that have produced a 20 percent drop in production, according to Bloomberg News.

"Oil futures are based on people's fears. It's almost exactly similar to the stock market," Dan Kammen, a UC-Berkeley professor and co-director of the Berkeley Institute of the Environment, said. "We buy oil on the futures market. So if you look out in the future, you have to say, is it likely that Iran will have a conflict?"

Some experts and analysts have said the market's acutely speculative quality (investors get spooked whenever the global crude cost increases) has added a "fear premium" of $10 to $15 per barrel.

A decade ago, just less than 100,000 futures contracts for light, sweet crude oil were sold in a typical day on the New York Mercantile Exchange. But on August 30, 2005, the day after Hurricane Katrina struck the Gulf Coast, more than 400,000 contracts traded hands, according to the gasbuddy.com. For six years Toews has been avidly watching the market and running the site, which he says gets a half-million viewers per day.

A barrel of oil, which reached a record price of $75 Friday, is 42 gallons. Once distilled, about 35 gallons of gasoline can be made from a barrel of crude. Each dollar a barrel rises on the market pushes pump prices up more than two cents. And that premium reaches consumers almost immediately, due to oil companies' reactions to the commodities market.

Crude oil comprises between 40 and 60 percent of the retail price of gasoline. In 2005, crude accounted for 52.5 percent of the pump price, according to the U.S. Energy Information Administration.

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