A lot of people have gotten hot in anticipation. We aren't $100 per barrel oil virgins any more.
NEW YORK - The price of oil on Wednesday hit 100 dollars a barrel for the first time in history, providing a new jolt to oil-dependent economies, particularly the United States, dealers said.
On the New York Mercantile Exchange (Nymex) at 1720 GMT, a barrel of "light sweet crude" for February jumped 3.48 dollars to 99.46 dollars. Shortly before it had reached the exact price of 100 dollars a barrel.
In inflation-adjusted terms you will find a range of estimates between $96 and $103 for what oil in the early 1980s peaked at. So it is not clear whether we have exceeded the record price in inflation-adjusted terms. We might need another $5 increase to surpass the earlier record.
A new report by the Organization of Petroleum Exporting Countries indicates the group will be more hard pressed than previously thought to meet the world's surging oil needs and could fail to supply its share of global oil markets by 2037.
The report in the December issue of the OPEC Review, published by the organization's Vienna-based Secretariat, also says Kuwait is likely to be an extremely inconsistent and unstable supplier and questions Saudi Arabia's assertion it is capable of meeting world oil demand for the next 50 years.
Do the Saudis lie about their oil reserves or are they deluded?
The report's author actually has what seems to me a very optimistic outlook on OPEC oil production increases.
The author of the report, Ayoub Kazim, the executive director of Dubai Knowledge Village, a government-run education center, writes that the "more realistic" scenario assumes OPEC's average oil production will grow annually by 5 percent to meet a "drastic increase in oil demand from industrializing countries, such as China and India in the next two decades."
Under that scenario, Indonesia, Algeria and Nigeria will fail to produce their share by 2009, 2022 and 2026, respectively, forcing other countries to make up the difference.
Most OPEC members are going to fail to keep up, let alone increase, their production sooner than that.
What I most want to know about: the rate of demand destruction. There's a big delay between an increase in oil prices and a resulting demand destruction. But rising prices do eventually curtail demand. Last time this happened in the late 1970s high prices caused a decline in world oil demand from 63 million barrels per day in 1979 to 55 million per day in 1983. The decline would have been steeper had prices not declined.
On the one hand, we have lots of technologies we can use to reduce our energy demand. On the other hand, Asian economic growth is increasing the number of oil users. So while higher prices will cut some sources of demand other sources of demand are popping up every day. As incomes rise in China and India so does buying power for gasoline and diesel fuel. So I think we need higher prices to achieve the same amount of demand destruction as we saw in the early 1980s.
Oil inflation and the rush to biomass energy is fueling food inflation. The 2007 price increases of palm oil and soybean oil are almost the same as that of petroleum oil in percentage terms.
Agricultural products have been among the best-performing commodities this year. Palm oil has gained 56 percent, soybeans 75 percent and soybean oil 62 percent. Goldman Sachs raised its 12-month forecast for soybeans by 61 percent to $14.50 a bushel from $9 a bushel in a Dec. 11 report.
The choice becomes between food or fuel. Fuel seems to be winning.
|Share |||By Randall Parker at 2008 January 02 11:03 PM Economics Energy|