Should Oil be sub 40?

Question

I mean the price went up so fast due to speculation, it should go down in similar pace.

Answer 1

supply should equal demand in a rational market. The whole speculation increasing oil prices is based on the idea that hedge funds, pension funds, commodity indexes etc... were going long oil futures, increasing the implied demand, causing us to move up the old supply price curve. So in that sense, as soon as you can convince those groups to invest their funds elsewhere, we should see a decline in prices. As far as running out of oil, I'm not an oil geologist, so I can't speculate on how much oil is left, but I'm of the opinion that economics will drive the necessary technologies to fuel our energy needs.

Answer 2

Dredude is correct. It is estimated that oil demand over the next 5 years will be 50% more. Currently, the world consumes about 80 million barrels a day. So, in 5 years, consumption will be 120 million Bpd. When Katrina hit Port Fourchon and the LOOP (Louisiana Offshore Oil Port), it disrupted 20% of U.S. energy production. Add to that the fact that China and India (2 billion people, 1/3 of the worlds population) are coming online as major oil consumers, and it makes sense why oil has risen so much.

But if you think that oil is expensive at $50, $60 or $70 per barrel, then consider this; if gasoline prices were repriced to adjust for inflation, a barrel of crude would be going for about $185.

Dredude is correct that speculation can TEMPORARILY drive/down prices, but supply/demand and other external influences are what affect crude prices.

Answer 3

Should it?

Should WW III break out, the price "should" be above $100/bbl.

You seem convinced that "speculation" is the only cause of high oil prices.

The uncertainty and circumstances that caused the increase are still present. There have been no new discoveries or new ideas or new inventions or alternatives presented. We are still merely faced with a declining supply and an increasing demand. Add to that the uncertainty over delivery of the oil, whether because of political or terrorist unrest, or a maximum output at the refineries, or problems with pipelines in Alaska. Add in there an endless new demand from China and India, whom all want cars like the Americans, and you have to wonder where all that new oil is going to come from.

In all free markets, these are the things that determine price, primarily supply and demand. Speculation can exagerate price, but does not the "cause" or determining factor of price.

Answer 4

depend on many factors:
hurricane season
IRAN/north Korea
China/India slow down or not
oil drilling other than OPEC on line quick enough to replace the cartel
How Alternative energy get the green light from the public