Exhibit A: Oil Prices, Global GDP, Net Oil Exports
The chart above shows oil prices, net oil exports (data here) and world GDP, quarterly from 2002:Q1 to 2008:QII. The data for OECD world GDP and oil prices are from Global Financial Data (subscription required). Oil prices are on the right scale in $/bbl., and world GDP and net oil exports are on the left scale, both expressed as an index equal to 100 in 2002:QI.
The graph above was inspired by the CFTC report and graph of world GDP and oil production, featured on this CD post. I added oil prices and used net oil exports (from Net Oil Exports) instead of oil production.
Bottom Line: The graph shows that world GDP, net oil exports and oil prices were all increasing at about the same rate from 2002 to early 2006. Starting in about mid-2006, the three series started to diverge as world GDP continued to increase, but net oil exports started to decline. It was at that point of departure in 2006 between global output (GDP) and the global supply of oil that oil prices started to rise significantly (see shaded area).
Although the decline of the dollar and the increase in speculative activity might have played relatively minor roles in the run-up of oil prices, the main contributing factor to high oil prices over the last two years appears to be the supply-demand imbalance that started in mid-2006. With the significant increase in world output and the accompanying increase world demand for oil and energy interacting with a flat and/or falling world supply of oil, there was only one direction for oil prices to go. Up. Nothing mysterious, nothing nefarious, and nothing to do with speculators. Simple supply and demand. Period. In other words, Occam's razor.