Jun 17, 2009

Oil $110/bbl by Next Year?

The Energy Letter ran an interesting article recently that I caught today at work. I have seen recent press releases from both ConocoPhillips and ENI stating that the recent increase in crude oil prices is not supported by actual demand. With demand down and reserves near capacity, prices should be stable, but in fact they are rising to the highest levels since November 2008.

What's up with that?

The author suggests it's not those treacherous speculators, but rather futures based on lagging production. I subscribe to that theory. I believe we'll have a spike in oil and gasoline prices next year as demand picks up and production lags. You can't just turn a drill rig on instantly, and there is going to have to be sustained demand and higher prices for production to increase to meet demand and pull prices back down. 

I don't if $110 is the correct answer, but I would venture that "significantly higher than today" will be a pretty accurate forecast.

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