Followers

May 1, 2009

Will we see $100 oil again?

POLITICS - Last summer was a rocky year for oil prices, largely due to a lack of supply in North America and oil speculators who bid the price up beyond where it normally would have been.

So... could it happen again? Could we see hundred dollar oil again in the near future?

It is possible. Oil prices today rose to $53.34 US per barrel, despite the current recession (although its passed a point where we should now be calling it a depression) and people in the United States (the foremost consumer of oil) cutting back on driving and spending.

There was a time... not that long ago... when people were panicking about the prospect of $50 oil, and we've now become used to it, and instead fear the next time it rises to $100, $150 or even set a new record closer to the $200 mark. We came close to $150 last year, at $147.27 USD/barrel.

And since hitting that bar, we've now set the bar higher. Two hundred dollar oil. That doesn't suggest we won't just see it happen, it suggests when it does happen and things settle back down we're likely to see $100 oil to become the new low point.

North Americans have never really seen the true price of oil anyway. For decades now our governments (the United States and Canada) have been subsidizing the oil industry billions of dollars per year in an effort to keep prices cheaper. If you travel overseas the price of gasoline doubles in some places, an indicator of how much it is subsidized in North America.

We are however reaching a tipping point where oil subsidies may no longer be useful, largely due to competition and demand in China and India, and we will see our oil supplies become more meagre despite our attempts to make it more available and cheaper.

As a metaphor, oil is the lubricant which makes our economy go faster. Cheap oil = Cheap transportation, which means people can get to work easier, can afford to buy other things, more things and overall helps to spin the economic wheels faster. Take oil, gasoline and diesel away... and our economy grinds to a near stop.

Lately oil prices have hovered around $50 a barrel for several weeks, a steep price when you consider that U.S. government data shows that the American appetite for petroleum has dwindled to its lowest point in a decade, and storage houses are holding the most unused crude in nearly 19 years. So much that they're having to rent oil tankers just to store it for weeks or months at a time. We are currently overstocked with oil, as if worried about the upcoming driving summer driving season and a possible shortage.

Critics of the situation have even openly speculated that the big oil companies may be deliberately inflating the oil prices just so they can keep profits up. Other more radical people blame environmentalists or some other crackpot theory for who or what may be keeping oil prices high despite the current abundance of it. Some people are even blaming concern over Swine Flu as a possible reason, worried that 7% of the world's population might drop dead over the next year from the plague.

If so... wouldn't that mean 7% more oil for the rest of us, and in theory prices should drop significantly? The current situation is backwards... and all leads back to oil speculators again.

Which means that despite the cutbacks on oil consumption, oil speculators might still drive the price up again (and then make a profit off the raised prices).

OPEC leaders have recently said the price of oil needs to be above $70 to fund high-cost production fields. Just the whisper of OPEC cutting back on production has a tendency to raise prices.

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