Did we have so much more oil back then? No. We have 27 million barrels more in storage right now (387 million now compared to 359.9 million then).
Are we producing less crude? Nope, the U.S. is producing more oil than we have in decades. Production was up 14% in 2012, 15% in 2013 and we're up an average of 12% this year.
Well, if we're producing so much and prices are still higher then we must be consuming more, right? Wrong again. Since we peaked our gasoline usage in 2006, we have regularly declined our usage. The U.S. is down an average of 8% in usage of gasoline. There are a variety of factors that contribute to this, including standards on increasing miles per gallon and new technologies.
So if we're producing more, using less and have more in storage, why is the price so much higher? It's simple: fear and speculation.
The fear that Russia will cut off crude supplies to Europe, ISIS rebels will cut off Iraq oil supplies and fear of the boogey man. To date, not a single barrel of oil has been disrupted by these geopolitical situations, but that's the only thing you see in the media. Will ISIS rebels march into Baghdad? Will Vladimir Putin honor his statements to work with the G8 nations and Ukraine?
Admittedly, this sounds like an over-simplification. Pundits will tell you there are so many more factors to consider. Really, that is all noise.
For every shale property you hear about that isn't going to produce as much as the drillers originally thought, you find another that is going to produce far more than they thought somewhere else in the world. It truly comes down to three things: supply, demand, and fear/speculation. If WTI crude had its own VIX, it would be about $30 right now.
Forget the "what ifs" about Iraq and Russia for a second. Let's talk real numbers about the effect of these higher oil prices.
For every 50 cents extra we pay at the pump, it takes away about $60 billion from GDP. Studies vary, but for every $10 per barrel it negatively affects GDP by 0.2% and consumer spending by 0.4%. Given the slowness of our recovery, can we really afford to be this fearful of "what ifs?"
Any energy strategist worth his or her weight in sand will tell you that based strictly on a fundamental basis, crude should be somewhere between $80-$90 per barrel. The question remains: Should we pay up for fear or should we wait until there is actually a supply disruption before paying up at the pump?
There will always be another headline. At what point do we begin to read between the lines?
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.