Oil sets new record high of $122 a barrel

Oil sets new record high of $122 a barrel

Over the last few years I have become a fiend for information and statistics and have been morbidly watching the price of a barrel of oil go from below $30 dollars a barrel in 2003 to $122 as of today, which is double what it was this time last year. It feels a bit like watching a slow motion car crash.

I was reading about all of this years ago and was hoping it wouldnt happen, because the consequences will/are affecting pretty much every aspect of modern life, but If you don’t like wading through pages and pages of data and are wondering why the price of food has doubled in the last several years as well as fuel and so many other products, (and this is just the start) if you havent seen it yet, have a watch of this:



  1. Author
    ptsp 10 years ago

    Oil prices are going in one direction only, and there’s a very simple reason for that: market forces.

    Market forces say that when demand is growing, prices will go up, which will encourage new supply to be provided, and some demand to be discouraged. But oil is a very atypical market right now:

    * demand is growing in China and other places, as lots of people reach the income level that makes it possible for them to afford cars;
    * demand is growing in oil-producing countries, as the oil bonanza of the recent few years brings them prosperity and massive growth in car ownership and economic activity;
    * a number of countries, including those oil-producing countries that just have to dip in their production to fulfill demand, and many countries that try to support their citizens, further encourage oil demand via price controls or subsidies (their consumers are not subject to market prices and thus are directly unaffacted by them, even if their government are);
    * meanwhile, supply growth, which used to be the easiest way to balance the market in the presence of strong demand growth, is no longer happening. Production has been flat for the past 3 years and there are increasing doubts that it can increase in the coming years. Whether this is because of peak oil, because of lack of investment, or because of political games by oil-rich countries is essentially irrelevant: the fact is that supply is not responding to increasing prices.

    With growing, and largely price insensitive, demand on one side, and flat supply on the other, something has to give. Price increases are not the only consequence: they have to bring about market equilibrium. And given the above constraints, it can happen only by causing demand to shrink elsewhere, ie in the US, Europe and the non-emerging parts of the Third World.

    Oil importing countries in the poorer parts of the world are suffering mightily from higher prices, and limiting their consumption, but the overall volumes are too small to make a big difference. Letting Africa slowly die is not going to be enough,

    Thus Europe and the US have to bear the brunt of demand reduction. But here’s the problem: our demand is not very elastic either, and we either have to do without our cars, or be willing to pay a lot more than now for the convenience of driving them. But demand must shrink. So what happens?

    Well, it’s simple: prices have to go high enough to destroy demand. Given that we really don’t want to do without our cars, the pain has to be bad enough to actually cause (undesired at lower prices) changes in behavior. Thus, VERY high prices.

  2. Henry 10 years ago

    Well they can bring the US and Asia prices in line with Europe and watch how many people stop using their 5 litre cars for short journeys. May also help to curb obesity, which is a massive drain on resources. Come on fatties, jump on yer bikes!

  3. Author
    ptsp 10 years ago

    That’s what that guy in the link above suggested, but its because of high taxes we pay so much more than USA, not the price of the oil. Instead they are talking of scrapping the taxes in the US now over sumer driving season..

  4. Author
    ptsp 10 years ago

    And here are some reasons scrapping petrol tax is such a bad idea: http://www.ft.com/cms/s/0/10773a84-1c96-11dd-8bfc-000077b07658.html?nclick_check=1

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