The Never Ending Oil Price Debate

At last count, crude oil, the world’s most extensively tracked commodity was trading at well below US$ 50 per barrel. A massive decline from the all time highs of around US$ 150 per barrel reached barely a few months back.

At its peak, it enabled Exxon Mobil (XOM), the world’s largest private sector oil producer to report a record US$ 15 bn in quarterly profits. And the company was not alone. In fact, the enormity of the cash stockpile that players in unregulated markets generated also led to a huge outcry among oil users. But not anymore.

Crude oil is off a mind boggling US$ 100 per barrel and the debate whether it will retrace peak levels is getting stronger by the day. Opponents of the peak price theory point to the weird inverted supply curve that the oil cartel OPEC is confronted with. They argue that no matter how much OPEC forces its members to cut back production, their budgets have been tied to a much higher price of oil and hence, they would be forced to sell more in order to make up for the decline in price. Hence, this would ensure that supply increases or at best remains constant in a world of slumping demand.

On the other hand, supporters of a structural upswing in crude oil prices point towards the rapid decline in the oil fields of the world. And hence, with economies around the globe likely to come out of slowdown in a few quarters, oil could be back in the vicinity of US$ 150 per barrel or maybe even more. An interesting debate indeed! However, if there is agreement on one thing, it is on the fact that record profitability levels could be a thing of the past on account of the significantly higher extraction costs going forward.

Comments

[Ferdinand E...:]

Peak oil is no longer relevant, now that we have seen the oil price go to $147/b with no (conventional) peaking in sight. Of course, there are arguments that a peaking of sorts has already taken place, as well as an argument that a 'geopolitical peaking' has been experienced. We'll find out once the international macroeconomy and financial markets are put in order.

2008 Dec 03 06:09 AM

[Pipo:]

Jim Rogers has been buying oil, and he is almost always right on his calls. At least long term.

jimrogers-investments..../
oiltradersblog.blogspo.../

2008 Dec 03 09:49 AM

[jack kreg:]

I see no mention of drops in the cost of finding and extracting oil, with the collapse of steel and commodity prices, rigs going un-used, and rising unemployment.
One would have to expect that costs might at least ease, perhaps drop precipitously if poor economic condintions continue.

2008 Dec 03 11:47 AM