Hate to make this political, but depending on how the US plays its cards against Iran going nuclear, I think a 70 or 80 is very close.
There is a theory called, I believe, Hubbert's Peak. Hubbert was an oil economist who discovered back in the 1950s that oil companies, for tax reasons, tended to delay the reporting of new finds. His theory was that most of the major oil discoveries were made by 1935 or so, and he predicted that domestic US production would peak at 10M bpd in 1969 (it actually hit 10M bpd in 1970). There also are oil economists who claim that the Saudis and other OPEC have been overreporting reserves in order to have a higher production quota, which they then violate anyway. Add to that growing demand by China and a weaker dollar, and you have increased the price of oil. I actually hope oil orices continue to increase. First off, so far, the economy has proven able to absorb the increases, partially due to the fact that oil is still cheaper on an inflation adjusted basis that during the 1979 oil shock. Secondly, as oil prices increase, Canadian oil becomes economically viable to extract. And finally, as prices increase, it gives an economic incentive to alternatives. The technology is there to get ourselves off of this oil additican, but it is currently expensive. And it is not just converting our cars, it also is the distirbution system that needs to be built (for the past 100 years, we have been building a distirbution system of pipelines, tank farms, and gas stations -- this will have to be replaced or converted). Anyway, we will see what happens.
The two great economic downturns of my lifetime were the recessions of 1973-4 and 1979-81. The 1973-4 recession was worse than the depressions of 1837 and 1897, but by WWII the events of 1932 had given the word "depression" a bad name. The conventional wisdom is that both of these downturns were precipitated by "oil shocks." If anything, the economy today is more, not less, dependent upon abundant petroleum use. A barrel of oil now costs $65. That isn't somebody's hairbrained prediction, that's yesterday's actual market price. The stock markets, on both sides of the Atlantic, are at post tech bubble highs. I don't get it.
I voted for $70 but after I have already seen 65. In future years to come, I think it will go to 100 in 2 - 3 years. I have mixed feelings about the oil price going through the roof. It's not good for economy but I hope it cools down US's appetite for oil guzzling cars. Around my block, there must be 5 - 6 houses with hummers.
If you really think oil's going to hit $70, 80, 90, whatever a barrel, put your money where your mouth is and buy oil futures.
Part of it is that accounting for inflation, gas and oil is still cheaper than those shocks. Also, the price increased gradually this time, allowing the economy to absorb it and adjust. In 1973 the oil was literally turned off instantaneously, and in 1979, it was similar. I would also imagine that the use of petroleum has changed. Very little oil (something like 3% in the US) is used today for electricity generation. In the US, 65% is used for transporation. The rest is for heating, and various other commercial and industrial uses. This might also be a reason for the difference. One reason gas price increases have outstripped petroleum increases is that there are also concerns about refinery capacity in the US. No new refinery has been built here in something like 20 years. A couple of big refineries are having difficulties working to capacity. Personally, I hope the market allows an adjustment, so that people turn around and burn their SUVs because SUVs are unpatriotic.
It'll make a run at $70, then maybe ease off. Eventually, the rising prices are going to be inflationary. Interest rates will continue to rise. And we get a brand spanking new recession. Which will hurt the Chinese economy. Then , demand falters, and the price of oil falls. Rising oil prices do two things. It spurs new production. I for one don't buy the hype that the world is going to run dry of oil in a few years. And, oil will eventually hit a price that starts to seriously dent demand.
It is not necessarily inflationary. Since high energy prices hurts demand (less disposable income), prices will not necessarily rise. If your heating, ac, fuel bills all go up, you're less likely to consume at the same rate thus putting downward pressure on prices. That helps to explain why oil has doubled but prices have had a very low increase. Just the other side of the argument. I think they both have merit.
One thing to remember is that most oil consu,med in teh US is connected to transportation. According to Set America Free, only 3% of oil consumed in the US is used for electricity generation. 68% is used in transportation. So the real issue with oil and gas price increases is the increased cost of transportation. The key needs to be finding a way to reduce oil consumption in transportation. That will be difficult. Suburbs and the enwer US cities are designed for driving, not walking or mass transport. As for the rural areas, forget it. If I were king of America, I would address this by focusing short term on hybrid technology, use of alcohol based fuels and relaxing air standards on disel for a time. Long term, I would focus on alternative energy, and forcibly move people back into the cities. If I were king of America, I also would force Michael Moore to lose weight, declare the NY Yankees terrorists and engage in regime change in Metro Nation.
Why not? If I were an absolute ruler of America, I would ban any car that gives less than 20 miles per gallon. Goodbye and good riddance to hummers, F150s, and similar cars that are everywhere in the city. I would also ban any vehicle racing. Goodbye Indy500!
Our local radio had a gentleman who discussed the "refinery issue", stating that it's not an issue because it's cheaper for companies like Exxon (the source of information) to purchase refined product outside the USA then bring it in; i.e. the United States does not need more refineries. They also stated that 90% of the product is purchased a year in advance and about 10% is "on the spot" market. Also, that "zone pricing" - i.e. why the same gas is cheaper a couple miles down the road, is standard practice with grociers, merchants, etc. As with anything nowadays you don't know who to believe, but I tend to think there is a little truth to everything. As long as people are willing to buy it they will pay for it.
Some stock guy on the radio said that, from a technical analysis, the support line is at $65 and if it goes under that, it will drop below $60 soon. But if it has support at $65, it could bounce up above $70, easy.
At $70/barrell of oil & $3.18 cents/gallon (in California) it won't take too long for people to cut back ...
Which is why I hope the government does nothing to really effect oil/gas prices. The higher it goes the more people will trash unneeded SUVs and reduce consumption. Oil used to be used for electricity generation. During previous oil shocks, in the US, electric companies found alternatives. Now transportion alternatives become viable.
Thats just the start of it all... 4 dollars a gallon, here we come http://money.cnn.com/2005/08/31/news/gas_prices/index.htm?cnn=yes
I remember reading somewhere that if gas prices had kept up with inflation over the past 30 years, gas would be somewhere close to $4.50 a gallon. Thank Adu I took another job that is a short drive from home and allows me to carpool with my wife. We fill up one car weekly and the other monthly, unless we take a long trip. Sachin
Bad news from oil companies. Dozens of oil platforms have been damaged, some severely. At least one was found floating 17 miles away. I fully expect to be paying $4/gal for gas by next week. The scary thing isn't the upward movement of gas, but the frightening possibility it might not move down all that much in the near future, if ever.
On the other hand, shale-extracted oil may be the next step. Some of this reminds of the Mesabi Range storry. For those of you that don't know, the Mesabi Range was a formerly rich area of iron ore. Sometime around 1950, a top businessman said there was enough iron there to last for 1,000 years. A few years later, production peaked and ended in the 1980s, for the most part. But we've substituted aluminum and plastics for steel to the point where steel is relatively cheap by historical standards. I wonder if the same will happen with oil. Oh well.. my investment in Evergeen Solar is up 150% in a year. Sachin
I don't want to get into it on this forum, but the geopolitical aspects of shale-oil production would be as momentus as the energy aspects. Sachin