10/18/2007

Next Stop: $100 Oil?

I don't know why I watch the price of oil so closely. Perhaps it is because I'm the owner of a gas guzzling pickup truck and I have become more aware of the rise as the gas pump prices and total price of a tank of gas increase. As I've watched this run up in oil prices, I've wondered if we would ever get there...you know, $100 per barrel oil. In this article, several explanations are provided that show why we will likely get there and why our demand may not really support a price for oil that high.

Some analysts suggest that it is simply a matter of global demand increasing, and supplies throughout the world tightening, but I don't think that is the case because the article states that "the Energy Dept. reported Oct. 17 that inventories of crude and gasoline rose more than analysts had expected."

Some analysts suggest that the price is spiking in anticipation of future events that may disrupt supplies, tightening the supply. Perhaps....

Others feel that hedge funds and other institutional investors are simply chasing profits by buying oil futures in hopes that the price would shoot through the roof.

Whatever the reason, I feel deep down that we will probably see a cutback in the demand for oil and gas in the future and hopefully that will bring our prices back to a more reasonable level.

Whatever happens, Kade is looking a lot smarter driving the moped to school and work as the price looks as if it will increase to new record levels.

4 comments:

Sophie said...

There are many reasons why oil keeps rising to new record prices, but my main question is why the United States is so fearful of drilling for oil in its own country? Research has proven that the nation has enough oil in Alaska to sustain our country for many years, so why then are we not drilling up there? Is the nation trying to save its oil for a rainy day? I just do not get why we still rely on foreign countries to supply our oil when we have enough to take care of ourselves.

Logan said...

Maintaining an oil reserve in-house is part of a 'worst case scenario' globally. The government has it as part of their disaster plan to maintain reserves in case the planet goes to war or there is major devastation around current supplies.

I personally would like us to get away from a dependence on a non-renewable resource like oil. Long-term, we will have to find another power/transportation solution anyway since we don't have any more dinosaurs to bury and wait for them to decompose.

Dr. Tufte said...

I've been surprised over the last 4 years that oil prices have been able to stay so high, and to continue to percolate upward.

Timothy has touched on some of the possible causes. Econbrowser (in the blogroll) is the place to go to for more information on those.

For my part, the best answer is still surging demand. The global economy is still in the midst of its best multi-year run ever. When this stops, oil prices will drop.

The U.S. is able to handle this (so far) because the economy is actually much less dependent on oil than it was a generation ago. About 60% less, believe it or not. That isn't saying that we aren't using more, just that we are doing a whole bunch of things that we didn't used to that don't take much oil. Like blogging; and more broadly all the stuff we do with services and the internet these days.

As to Logan's comment about dinosaurs and fossil fuels, this is an urban myth. The decay of plants and animals leads to the creation of coal. It's a dirty little secret, but what geologists know is where to find oil, but not where it comes from in the first place. Without understanding this better, it isn't clear what the "long-term" actually is.

Caden said...

As of the day of this comment oil was over $90 a barrel. $100 is going to happen soon. What I find interesting is how we are seeing a small rise in our gas prices (although I'm sure a bigger one is short to follow) with the oil prices so high. You can still find gas at around 2.85 at some gas stations. Earlier this year and last year with an increase of oil from $60 to $75 a barrel we saw gas prices jump 20 cents a day to top out around $3.50. Those high prices were blamed on the price of oil. It's funny how we aren't there yet with oil over $90. Too much of this price is speculation. I'm confident that if the US announced that we were going to start turning coal to oil (which I've heard is profitable at $35 a barrel and we have the reserves t do it) we would see the price of oil drop rather quickly.

I know that we have the technology to turn coal to oil but companies are hesitant to invest in plants to use the technology for fear that OPEC will crash the market like they did in the 80's and drop oil below $35 a barrel and then those companies would lose their investment.