9/09/2009

Oil Prices: Higher or Lower in 2010?

I read an article in the seeking alpha that discusses about the oil price. This article indicates we need to ready for both direction Increase or decrease oil price. According to article and book If we look in short run market than definitely oil price will rise because in the short run, supply is inelastic, meaning that higher demand, leading to higher prices. In short run no new productions add in market so we can`t see new firms` supply effect in market.
On the other side in long run oil supply is elastic, meaning that higher price will bring new supply in market. But here I think oil price will rise in 2010. Because supply will decrease in next year. According seeking alpha article data oil price picked about $ 150 last summer but very less change in supply. Demand will increase about 87 million barrels and supply will decrease less than 83 millions barrels in 2010. Also in developing countries demand increase day by day. I believe according to supply and demand theory price will go higher. According to Higher demand as the global economy improves will push U.S. crude oil to average about more than $100 to $150 a barrel in 2010.
In long run oil price is elastic and when global economy improve income also improve. On the other hand the government pumping more money in market. Because of this inflation rate increase. Inflation is very effected in any higher price. Thus these all factor also effect to higher oil price.I believe oil price rise and reach average more than $ 100 in next year.

What do you all think oil price will increase or decrease in 2010?


http://seekingalpha.com/article/157778-oil-prices-higher-or-lower-in-2010

5 comments:

Thomas said...

I think oil prices will definitely go up in 2010. However, I don't think they will go up dramatically, and, for the near future, they probably won't top the prices we reached during the Summer of 2008.

In the long run, oil prices will likely continue to go up, but 10 years down the road there will likely be a large percentage of electric and alternative-fuel cars on the road, thus making the price of oil probably level out and even start to come back down because there will be less demand for it.

I think that for the foreseeable future we will still be dependent on oil, but our dependency should decrease more and more each year as we discover new ways to skin the oil cat.

Rebecca said...

I disagree with Thomas. I believe oil prices will not go up in 2010.

I heard a report on NPR this week about oil prices staying put in the short-run. The causes put forth were similar to the reasons for decreasing demand in the "Utility Bills" post. Domestically, recession has many consumers looking to cut expenses through the winter months by utilizing more sweaters and less heating oil.

Although only a month has passed between the "Seeking Alpha" article and the NPR radio report, it appears the price for oil has begun to fall.

I think oil prices will stay flat at least not rise significantly because domestic and global demand is suppressed.

Emerging consumer markets like India, China that were part of the huge increase in demand a short time ago, are chilling.

Dr. Tufte said...

Rachel: you'll lose full credit next time if you post something with that many grammatical errors.

I'm going to keep my mouth shut on this one (mostly). The last 5 years or so illustrated for me that I don't know anything about oil price forecasting.

One thing I will add though, is that any claim that alternative fuels are going to make a dent in this is just wishful thinking. There really aren't any competitive solutions out there: just ones that hide the opportunity costs better than others.

Lucas said...

Oil prices in the future will depend on many things in the economy. What happens if the dollar makes a strong run and is more valuable versus other currency? What happens if it does just the opposite? Oil prices will creep higher and higher in the coming years. If you have ever cooked a frog you know that you cannot start with boiling water. The frog just jumps out if you do this. You must start with cool water and warm it up slowly until it boils.

We can see the effects of what happened when oil prices sky rocketed in 2008 and people were not happy. This is similar to throwing the frog in boiling water. Everybody was upset at the oil companies and providers. I think that if they had taken a more gradual approach (and hedge-fund guys would have not been so greedy) then oil prices would still have gone up and everybody would have been okay with the oil companies and their profits.

We are too dependent upon oil and we see that almost every day with government trying to implement "green" laws for just about everything. There are many things that need to happen to keep oil prices down as much as possible but they will still continue to rise.

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