SEARCH BLOG: OIL
Last year when oil prices were on the way up and had reached $90 per barrel, I wrote that I could see a correction in the future... not immediately, but it would happen. My envisioned "corrected" point was $51 per barrel. That was obviously crazy given the peak oil forecasts of $200+ for 2009.
Now read what the Herald Sun in Australia wrote.Not there yet, but maybe soon. After all, its only $25 away and has fallen over $70 already from the peak oil panic prices. Maybe it won't reach $51, but there is still a strong possibility.
How could I have made such an audacious prediction and how could it have the possibility of being correct when the world's experts all pointed in the opposite direction? If oil were a commodity or product upon which little else depended and for which there were no substitutes, then its scarcity could certainly drive up its prices... presuming there was a steady market that wasn't that price sensitive. I'm not sure what kind of product that could be.
But oil is a basic commodity upon which nearly all economies depend. There was never a real scarcity... just the potential of demand outstripping supply. So when prices doubled and tripled, it was pretty obvious what the result was going to be... dramatic economic pullback... followed by a dramatic price reduction for oil back to a more "balanced" level. This happened in 1973 and 1980 so why is anybody surprised the third time? Maybe they didn't study history. Of course, the credit debacle has pushed the price decline fairly more rapidly than even I might have anticipated.
As economies begin to recover, there will be repeated efforts to push oil prices back up over $100, but it becomes self-defeating if pushed too far. It was obvious last November that it was being pushed too far. I'm not sure what is "the right price" for oil, but we can all tell what is "the wrong price" when we experience it.
Maybe OPEC and speculators will learn something this time. Maybe our politicians will also learn that grandiose alternative energies available in 20, 30 or 50 years from now, don't take the place of real energy produced now in our own back yard guaranteeing sufficient supply at non-extortion rates. Or maybe we just have to go through this a 4th time... or more.