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
- Huge increase of oil consumption in Brics (Brazil, Russia, India, China)
- Heavy Oil dependence
- Source of oil is running out
- Failure of international agreement to reduce oil consumption
- Politics in Middle east
- Oil supply is very inelastic. Higher prices do not significantly increase oil production.
Inhibitors:
- Massive new oil discoveries leading to more oil production
- Development of a new or alternate source of energy
- Energy consumption regulation
- CAFE standards
- Increase in efficiencies
- Lower energy consumption lifestyle changes
- Reduction of oil consumption through environmental awareness
- Carbon tax
- Oil demand is very inelastic. Higher prices do not significantly reduce the demand for oil.
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.[3]
Speculation
As much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds.[4]
Drop in dollar value
Since the oil price is tied to the dollar, as the dollar drops in value, the price of oil increases.[5] If one looks at inflation adjusted oil prices, they remain relatively flat.[6]
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.