Not Sure This is Justified

Crude Oil closed today above $100US a barrel, the first time that has ever happened. Despite touching that magical threshold last month, crude had fallen into the more realistic price range of between $80 and $90 a barrel before pushing past the $100 mark today. Most experts, and I use that term lightly, blame the increase on several above ground factors, the possibility of a cut in production from OPEC, the ongoing battle between Venezuela and ExxonMobil and the refinery fire yesterday in Texas. Still, there really isn't any reason for oil to have surged the way it did. The market is adequately supplied, for the time being, and with the global economy slowing, especially here in America, demand is almost certain to fall this year as most people cut back on driving.

In addition, 2008 might just see an increase in crude production as several megaprojects are slated to go online this year and next, offering a temporary cushion before reality begins to seriously set in by 2010 when producers will struggle mightily to keep production even close to current levels. This of course is contingent on everything going according to plan, something that rarely happens in the oil business. Some of these projects will fail to get off the ground, others will never produce the promised amounts and it's always possible that the increases will not be enough to offset declines in such giant fields as Ghawar, Burgan and Cantarell. Furthermore, and most ominous, is the continuing decline in exports from places like Saudi Arabia which is being plagued my massive new increases in domestic consumption.

Anyways, what happened today never should have happened. If OPEC doesn't cut production in March, there's no reason oil shouldn't drop back down near $80 a barrel, a price OPEC seems more than content to keep. So for now at least, despite what happened in New York today, it's still the same old rallying cry, "Party On"!

2 comments:

FriĆ°vin | February 21, 2008 at 11:31 AM

Oh, wait until it starts going up in anticipation of summer travel. Whether very many will have the disposable income to travel remains to be seen.

Kelly | February 21, 2008 at 1:01 PM

I'm standing by my thoughts that this price jump is crazy. There really is no justification for it. T. Boone Pickens said today that he expects oil to drop back down to about what I said. However, once the summer driving season gets here, prices will probably edge upward and if OPEC does cut production, look for oil to surge to $120 a barrel. It's still "Party On" for a while longer, but the end is near.