Thursday, June 25, 2009

The Price of Oil: Problems in Future Predictions

When the price of a barrel of oil went below $40, no one expected it to stay that way. The question was how high the price of a barrel of oil would go once it had bottomed. Now that it is approaching $70 a barrel, all sorts of experts are making predictions about future prices. I am not an expert, but it doesn't take a forty year background in the oil industry to know that in the short and intermediate term the price of oil will go up. The big question is the long-term price of oil, meaning how high will it go.

An article in Fortune states, "there are signs that a demand recovery could be on the way in Asia. China's crude consumption averaged 7.6 million barrels per day in April, according to Alidena the highest level on record, amid reports that the government was stockpiling commodities. Goldman Sachs was confident enough of a demand rebound to come out in early June with a price target of $85 a barrel for West Texas intermediate crude by the end of 2009 and $95 by the end of 2010." There are some, although not many, who predicts that oil will reach a price of $250 a barrel.

As a worldwide recovery begins, the demand for oil will increase. Most experts say that worldwide production of oil is at or near its peak. The problem with long-term predictions is that they don't take into account the secondary effects that high oil prices to create. While the amount of energy produced by wind power is very small at the present time, $100 a barrel oil will have a significant impact on it. Also, the nations of the world know that their economies begin to begin to slow down significantly as the price of oil arises. No one can predict the impact of all the measures taken by the major oral consuming countries as a response to high oil prices. On a recent trip, I continually parked my Toyota Corolla between fleets of SUVs and minivans. When the price of gas goes over three dollars a gallon again, people will seek other options. In fact, the new SUVs are becoming much more fuel-efficient.

The wild cards in the deck in efforts to predict future oil prices are things yet to come and be invented. New wind power generators take up much less room, and people can now have a wind power energy generator put in their backyard for $8,000 to $10,000. With so much money can be made in viable alternative energy production, it is impossible to predict what new inventions will be created the young men and women at MIT and Caltech as well as the large oil companies. For an undefinable period of time the price of oil will be high in the amount of economic pain will be all also be high. But in the long run, those countries that are thriving on the production of will eventually be trying to find a market for unwanted thick black sludge.

1 comment:

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