Wednesday, January 2, 2008

Oil at $100 per barrel

HAPPY NEW YEAR!! Nothing rings in the new year like oil hitting an all time record of $100 per barrel. So what's driving up the price of oil? Speculators and speculators and, let me see, speculators. Yes, demand is high and supply is tight. And yes, there are problems out there. But the oil is still flowing. There haven't been any real shortages like there were in the 80's when oil hit $40 a barrel. If there were real shortages, the US government would release oil from the strategic petroleum reserve to help meet those shortages. That's what they did for Katrina and Rita a few years ago. I think there is this fear factor in the oil business that something is going to come in and whack supply without affecting demand and that is causing oil prices to spike. OPEC announces that they won't be able to meet their share of global demand by 2024. Hmmmm.... That's like 16 years away. The higher cost of oil is dampening demand. I know that I don't drive near a much now as I used to. Sooner or later we'll experience stagflation (this same economic situation happened in the 80s), the economy will tank, and demand for oil will drop like a rock. And the price of oil will drop as well. But until the US and worldwide economies cool down enough, oil won't plunge. And we'll all be held hostage by increased oil prices, which in turn raise the price for everything else that we consume. Have you noticed the price of food lately? Can you say sticker shock?

And yes, it doesn't help when the dollar is at an all-time low against practically every major currency in the world, and that is caused by lower interest rates here in the States. But still, I don't think half a percent drop in the interest rates in the States would have this profound effect on oil prices.

So I'll sit and wait. I'll wait for the economy to cool. I'll wait for the speculators to get burned. Because they are burning everyone else right now. They are making some incredible money right now, but eventually normalcy will return. One good thing that this has done is it has caused people to purchase more fuel efficient automobiles. It has caused Congress to pass new mileage standards for automobiles. This is a good thing.

Again, Happy New Year! Have you hugged your oil speculator lately? ;-)