Remember when $50/barrel was a hot topic? Geoff Styles,an educated student of the game looks back. Oil Price Hangover is his title, but describes his take on the subject so well I’m using it too.
Mr. Styles dug out a scenario he put together back in the olden days (6 yrs. ago) when oil was pushing the $50 mark, then a lifetime high.
…. Though it seems hard to credit now, at the time even that milestone seemed nearly unimaginable for the group of energy industry managers participating in the workshop I was leading. WTI had just broken through $40/bbl, which represented the highest nominal oil price any of us had seen in our careers, a record set in the lead-up to the first Gulf War. Although the prices in the early 1980s, after the Iranian Revolution, were higher on an inflation-adjusted basis, we had just lived through a couple of decades in which oil had notably failed to keep up with general inflation. Of course from our current vantage point $40 or $50 now seems cheap, and that’s precisely the point. …
He also points out how different things are from the 1st time oil jumped over the $80 mark.
…there was much talk of the risk premium on oil prices due to tensions with Iran, as well as the impact of a weakening US dollar. Most importantly, the global economy was still booming and OPEC was having trouble keeping up with growing demand, particularly from the developing economies of China and the Middle East oil producers themselves, along with the US at the tail end of the bubble. By contrast, despite expectations for a recovery in 2010, today’s oil market is dominated by weak demand, with average US demand for oil and its products in 2009 down by 10%, or 2 million barrels per day (MBD) from ‘07. The global appetite for oil fell by 1.5% in 2009, with only Asia and the Middle East registering any growth. Inventories are ample, refineries are running at extremely low rates of utilization…
Mr. Styles has gathered much interesting info on the oil pricing universe and where it may go from here. You really must read the whole article. My synopsis does not do it justice.
