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October 16, 2007
Seen the latest prices for crude oil? Over $88 a barrel!
I cut my professional teeth in the early 1980s as an oil reporter in New York City for Energy Intelligence, Platts Oilgram and Reuters, so I always follow the basic price of crude oil which to me is a key economic indicators.
Back then, $39 a barrel was the highest price that crude oil had ever reached - in early 1981. But that was before the spot market let alone the oil futures markets of today.
And as the price closes in on $90 a barrel, prices will soon be the highest they have ever been - even adjusting for inflation.
What's driving them? Simple supply and demand.
The supply pressure comes from uncertainty. The Middle East remains by far the biggest source of crude but also the most politically volatile region in the world. We've made a hash of Iraq which is now in chaos, Iran cocks a snook at the world with its nuclear plans and genocidal declarations about Israel and Osama bin Laden pursues his ultimate goal - the takeover of Saudi Arabia.
Consquently any blip in that region reverbrates through the market sending oil prices up.
Meanwhile, demand keeps going up. The industrializing third world, especially the mega-economies of China and India, have put pressure on oil supplies in recent years. And here in the U.S., we continue to wallow in low energy prices.
Europe has already cut into demand by taxing energy to the point that a gallon of gasoline is now the equivalent of $8 a gallon. You don't see many SUVs in Europe!
But as prices continue to go up, research into alternatives is bound to increase. It's simply a matter of economics. It's one thing to do R&D into alternative energy because of CO2 emissions and the ozone layer; it's another to do it because the price of oil is becoming exorbitant. The former is driven by enlightened self-interest; the latter by simple self-interest.
And that's where the analogy of the last whale comes in. For while we came close, we would never have killed off all the whales. It would have been too expensive to chase down the last one.
And so it is with oil. At a certain point, it becomes too expensive and we are forced to look for an alternative. To be sure, that time is a long way off but when crude prices are over $88 a barrel, it may not be that far off.
- Peter C.T. Elsworth
Posted by Peter C. T. Elsworth 
at 3:39 PM to Crude oil market
, Gas prices
, commentary
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