Is there a point in which the price of oil will begin to go down? If the price of gas gets too high it will begin to drastically change the way consumers travel. I assume more mass transit and more fuel efficent cars will be produced and a lot of people in the country will start riding motorcycles and scooters. I read an article the other day in which the National Association of Business Economists predicted that the cost of crude oil per barrel would fall to $98 in Dec. '08 and $92 by Dec. '09. Where would they come up with such an estimate?
So in your opinions will oil continue to climb upwards forever or will it eventually fall in price like the NABE says?
When, do you think, are customers going to change their travelling preferences and habits dramatically? As far as I understand, gas prices have reached about 3,70$ per gallon in the United States. Americans perceive that to be high. In Germany, you pay 1,50€ per litre these days, that’s about 6€ per gallon, equalling around 9,40$ per gallon. And still, people rather drive than walk a hundred yards to buy sweets and cigarettes.
On the other hand, you rarely see gas-guzzlin’ Silverados cruisin’ 'round here, but still. The convenience of individualized transportation continues to justify the exploding costs for most car owners, as far as I see.
I’d also contest the view that American gasoline is the main driving force behind crude oil prices. After all, awakening giants like China are going to increase demand pretty much regardless of price hikes and oil as the “lubricant” of every industrialized country has far more applications than just powering cars.
Don’t lose sight of inflationary effects either. As oil prices are intimately connected to the dollar, a plunge in dollar value is likely to cause another hike in crude oil prices.
Personally, I can’t reenact the NABE’s conclusions. Maybe it’s just supposed to create some sort of ‘upbeat’ business atmosphere?
Oil is in a bubble. It’s being driven up now on speculation that Iran will be bombed. If Iran is bombed, it will spike up even further for a short time while smart longs dump it, then slowly collapse to a point way below where it is now.
The price has been increasing at a cumulative rate of 25% pa for the past seven years or so. It has just hit the top of that price-channel (viz $130 per barrel). Channel analysis suggests that it will fall back from here, then leap up at some point to $160 until it falls back to $40.
But I ain’t placing any bets on it. Betting on a bubble is a sure route to the poor house.
The complaints from the media have shifted from the high prices of gasoline to the high profits of the companies. The companies blame supply and demand, and say that they need to be allowed to drill in places where they are banned from drilling, and senators tell them that they just want to do that to make more profit.
Increasing the supply might drop the prices. So will using less gasoline, in general.
I tried looking for their analysis on their website, but I think you have to be a paying member. I am curious how they came up with their estimates. Obviosly demand is only to increase, especially with the emerging countries of China and India
Like Lance said, oil could be in a bubble, but I really don’t know. I think we are reaching the critical point where demand is outstripping supply. I really don’t see cheap oil ever again. It may dip down to $90 or $100 per barrel for a time. I would be skeptical if it dipped below these levels and remained there for a substantial time.
i’m not sure oil will come down substantially. it may not be a market process. if you look at the price of oil in terms of gold, it has actually slightly declined in the last 10 years or so. compared to the super-inflationary dollar and euro, on the other hand, well, you know what that looks like.
here’s a chart (gold in purple, dollar in blue and euro in red):
Your chart does not show the most recent surge in oil/gold – from 0.1 oz in Feb to 0.14 oz today.
I am looking now at a chart of oil/gold - i.e. the cost of a barrel of light crude oil in troy oz of gold - which stretches from 1920 to today.
In 1920 oil was 0.3 oz gold. From 1921 to 1930 it was down to between 0.1 oz and 0.2 oz of gold. Since 1930 it has always been between 0.03oz and approx 0.14 oz, and right now is at the top end of that band.
This is only the 4th time it has reached this level since the 1920s. The other times were Jul 76, Jul 2000, and Jul 2005. Every other time it has rebounded sharply downwards from these levels. This time might be different - but I wouldn’t bet on it.
i’d never bet on “this time it’s different”, either. normally in a situation where something like this is on what might be called a “climax run”, a sharp decline follows. that happens in a market process. what i wonder is if this particular instance actually is a market process considering the effects of monetary inflation. i’d like to see the relationship between gold (or any other commodity, for that matter) and oil before and after 1913 in relation to actual monetary policy.
the chart simply shows a remarkable stabilty of gold compared to exaggerated fluctualtions of the dollar. of course, we know that any two commodities will fluctuate in price relative to each other on a market, but i’m interested to see the fluctuations of a non-market entity (where supply is not market determined) like the dollar in comparison.
btw, where did you get those charts? i’d love to take a look at them.
NABE has a very strange way of looking at things. I am a member of NABE and get quite flustered trying to understand their reasoning. A lot of times they will send out questionaires to folks who then respond and based upon the responses of the individual members will they come up with some chart/analysis.
Bear in mind that NABE LOVES the Fed. They love the Fed to the point of putting on a seminar where the Fed talks about the Economic Outlook. As for me, the Fed is not to be trusted or believed.
Unless the dollar is going to gain some ground again and the threat of the US bombing Iran subsides, I do not see the price of oil getting any cheaper.
As far as Congress’ ideas on how to deal with the problem…taking OPEC to court (which court by the way and would OPEC care) is a move in the wrong direction…how about getting rid of the Fed and those lunatics in the White House…after all, that’s where part of the problem resides.
I tried (and failed) to get independent confirmation on the Iran tanker deal… just found a few conspiracy nuts with claims that they were either going to flood the Persian Gulf with oil or they have secret deal with Hugo Chavez to manipulate worldwide oil prices.
I don’t know that I personally believe that we will see $75/barrel in the short term but who knows?
I think that monetary inflation, in the broadest sense of availability of credit, blows up a little bubble into a big one. And futures markets (see Anonymous Coward’s post) exercise greater leverage than cash markets.
The dollar itself is a pretty good proxy for gold before 1913. From at least 1796 (where my data begins) to 1834, the dollar was steady at $19.40/oz (aside from a 3-yr spike in 1814), and from then until 1913 it was steady at $20.67/oz (aside from a 16-year spike during the US civil war, peaking at almost $60/oz in 1864).
But I don’t have oil prices earlier than 1920. If you find a free source for them then please let me know.
I use a program which divides the prices of any two instruments. This is the chart I was looking at on Friday, updated to Friday’s close. It’s a candlestick chart showing the quarterly price of NYMEX near-term light-crude futures relative to spot gold oz: