Crude Oil Prices
Crude oil prices receive a tremendous amount of attention from every type of investor, whether they are running their own small investment portfolio or managing billions of dollars in a highly leveraged hedge fund.
The close attention that crude oil prices receive in understandable given that crude oil is truly the life blood of the modern world’s industrial economy. Crude oil is the raw material input to products, such as gasoline, jet fuel, and plastics, that are essential to a modern way of life. No wonder that the availability and price of crude oil is something that one way or the other affects nearly every human being on this planet.
Unfortunately, crude oil is a finite natural resource with current supply and demand factors closely balanced. The future for both the availability and pricing for crude oil looks to be ominous indeed. As countries like the US continue with their wasteful energy habits, and rapidly developing nations like China and India add more automobiles, aircraft, and oil dependent uses of all kinds to their development mix, the pressure of increased demand against declining oil production around the world will in time cause a huge increase in crude oil prices.
We have probably already entered a situation called peak oil. Peak oil does not mean that we are completely running out of oil but it does mean that all of the “easy to get” oil has been placed into production and that the oil that is left will be increasingly expensive to find, drill for, and bring into production. Production from the major oil fields in the world, like Cantarell in Mexico and Ghawar in Saudi Arabia, are now in irreversible decline.
With the discovery of new large easily accessed oil fields that offer the prospect of producing oil at low prices per barrel remote it is just a matter of a little more time before the imbalance between supply and demand factors lead to extraordinarily high prices for crude oil.
Current relatively low prices for crude oil are more a reflection of the ongoing financial crisis and the deleveraging of financial assets around the world than true supply demand considerations. Any small disruption in oil supplies, especially if coupled with a modest increase in demand, could quickly send crude oil prices on to new highs above $147 a barrel.
Within five years prices for crude oil could well soar to well beyond $200 a barrel.
