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Comment by pzo | Hacker News Reader

I don't get why the prices jumped so much - looks like panic and hoarding because:

- The Middle East produces roughly 30% of the world's oil

- But about 20% of total global oil consumption flows through this strait (less than 30% because of of domestic consumption and some pipelines avoiding strait)

I would understand if prices increases e.g. 50% but like more than 100% seems like a panic or manipulation

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Oil demand is mostly inelastic. No matter how much or how little is produced, those who need it NEED it, so they'll compete with all others who similarly need it. The richest ones from among them get the oil first, and the poorest get nothing. The end price ends up being a function of how much oil is available versus how much the richest countries' absolutely irreducibly need for oil is versus how much wealth those countries can throw at the problem not to be left without before someone else with deeper pockets gets it.

Also, a third order effect of oil inelasticity is that if it cost too much , it decrease production and trade (might be less true now, but it was absolutely true in 2010), it lowers global demand, so the prices go down. Which is why markets can't predict oil prices, not really.

It would make sense if there was mostly inelastic demand for 80% of current production. I'm not sure if that is the case, but it might be. There is a lot of usage with no good substitute.

I had this thought as well. But oil prices are set globally on the exchanges, even oil that never leaves the US is affected.

I agree. Why is domestic oil linked to global oil price?

We are energy independent? Big Oil is milking US.

This is the exact reason that prices for U.S. benchmarks (e.g. WTI) are diverging from international ones (e.g. Brent). The spread between the two is the largest since 2011 and widening. There is only so much export capacity in the U.S., so there will be a glut compared to the rest of the world as a whole.

U.S. prices are up, but international prices are up even more.

if someone wants to buy American oil for twice the price overseas then it’s not gonna go to your local gas station…

Surely there are some shipping expenses though? For Global Oil.

Versus the Colonial Pipeline that is prevalent on the Eastern Half of US.

The ME has very low cost to produce, shipping is negligible.

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