Archive for Oil Prices

The Oil Price Roller Coaster

Over the past 40 years I have seen oil prices go from $8 per barrel to $150. It has vacillated in between countless times.

For a great summary on the topic please read the article by Thomas Donlan in the January 12, 2015 edition of Barron’s.

Higher Oil Prices

Higher oil prices are on the way for many years. Oil is priced in dollars and the present administration has a policy to devastate the value of the dollar. With a lower value to the dollar, naturally, oil producers want to be compensated at equal value. Say you are working for 40 hours per week at $20 per hour. Your boss says, hey, I have to cut your hours back to 20 hours per week. To maintain the same income, you will need to raise your pay rate to $40 per hour. Well, the same thing is happening in the oil market. If the dollar drops in half, then, the price of oil needs to double in order for the supplier to maintain equal value.

Let’s look at factors that have also led to these oil price increases:

1.) Worldwide economic recovery leading to more demand for oil.

2.) Russia has recently stopped increasing production and is holding at a little over 10 million barrels per day (BPD).

3.) Political problems in Nigeria, Egypt, Tunisia and Libya, all leading to cutbacks in production.

4.) Demand for oil is skyrocketing in all areas of the world.

5.) Societies that are modernizing are using more oil for autos, trucks, airplanes, boats and utilities, pushing growth of demand upward.

6.) Oil companies are straining to get more supply to meet world demand. Will they be able to produce more in 3-4 years? This supply/demand problem is increasing the value of oil in the ground as holders try to add to their supplies.

7.) World production is producing 87-88 million BPD. Capacity is about 5 million more BPD, up to maybe 95 million BPD. This will take place in 4 years, around 2015. By 2020, production will have a hard time going higher.

8.) The U.S. Gulf region has been shut down for almost a year. Only recent applications are being approved, but, it will be a long time before any oil comes out. The regulations are so stiff that it will take many years before production, and jobs, reach the pre-BP spill level.

9.) Most of Alaska is closed to drilling. The northern states in the U.S. are shut off to drilling. Between the two, these areas have more oil than Saudi Arabia, yet, the environmentalists have kept all of us hostage to foreign oil prices.

10.) Companies are not allowed to drill off the East or West coast of the U.S. Thus, the Mideast oil suppliers are having a laughing fit at the U.S. Talk about a security risk for us!

11.) Even if you increase productivity by 1/2 of 1% per year and demand increases 1.5% per year…you do not have enough to meet demand.

Charles T. Maxwell, a noted expert energy analyst, has a prediction for oil prices in the future (he has been right on his past predictions). Using West Texas crude as a price model:

$85 average for 2011
$95 in 2012
$115 in 2013
$140 in 2014
$180 in 2015
$300 in 2020

To prepare for this, start planning on (1) using more natural gas when possible; (2) invest in energy related companies so you can benefit from these rising prices; (3) begin thinking about strategies you can employ around your home to save (minimize) on the use of oil.