Oil price

Description:

The oil price has been steadily increasing and has recently peaked close to 150 US$/barrel. The price rose to a record $1.4727 on July 11, 2008.[1]

The rate at which oil is demanded exceeds the rate at which oil is supplied is the driving force of this event. In 2005, for each barrel of oil discovered we consumed six and a half.[2]

This is mainly due to a high dependence on oil, world oil depletion and a steady increase of world oil consumption.

Enablers:

• Global economic growth spurs oil demand.
• Increasing Demand for Oil
• Huge increase of oil consumption in Brics (Brazil, Russia, India, China)
• Heavy oil dependence
• Oil supply is very inelastic. Higher prices do not significantly increase oil production.
• Oil production near peak capacity. Spare production capacity acts as a cushion in the oil supply chain. A lower spare capacity diminishes the ability to absorb supply-demand shocks, leading to higher price.
• Oil refining near peak capacity
• Oil inventories low.
• Not enough oil contracts available for purchase
• Failure of international agreement to reduce oil consumption
• Oil spills [3]
• Intangibles - Politics in Middle east, Economic Uncertainty

Inhibitors:

• Global depression
• Decrease in oil dependence
• Development of a new or alternate source of energy
• Lower energy consumption lifestyle changes
• Reduction of oil consumption through environmental awareness

• Increase in oil supply
• Massive new oil discoveries leading to more oil production
• A surplus of contracts available for purchase

• Energy consumption regulation
• Carbon tax
• International agreements to reduce oil consumption
• CAFE standards

• Increase in efficiencies

• Intangibles - Peace in Middle east, Economic stability

Paradigms:

• Supply and demand

It is thought by some that we are in Peak oil. Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.[4] Peak oil is not about running out of oil, it's about the rate at which oil can be supplied to the market. If the rate at which it is demanded exceeds the rate at which it can be supplied, oil prices will go up.

• Speculation

As much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds.[5]

• Inflation

Since the oil price is indexed to the dollar, as the dollar drops in value, the price of oil increases.[6] If one looks at inflation adjusted oil prices, they remain relatively flat.[7]

Experts:

• M. King Hubbert
• Kenneth S. Deffeyes
• T. Boone Pickens
• Colin Campbell

Timing:

• 1965, Oil discovery rate peaked
• 1973, Oil shock. The fourth Middle-East Wars acted as trigger.
• 1991, Gulf war.
• 2003, Iraq war.
• 2007, Peak oil. World oil production peaked.
• 2008, The oil price has been steadily increasing and hits a record high at $147.27/barrel.

Web Resources:

• DOE: Energy Information Administration (EIA)
• The Association for the Study of Peak Oil and Gas (ASPO)