$100 Oil: We've Been Here Before

All this fuss about $100/barrel oil is really just a distraction. Now I can understand if you are arguing that $100/barrel oil is important from a psychological/marketing perspective, but not if you think $100/barrel oil is something new. We are actually still a few percent off of oil's all time inflation-adjusted peak of $102.81 back in 1980. But that is neither here nor there . . .


The real reason that this is an issue is not the oil hit $100, but that this time around there exists the real risk that oil could hit $150 or $200 within the next 5 years. The problem is that China is experiencing double digit GDP growth, and although they are 4 times bigger than the US in terms of population , they only use a third of the oil we use. That will change. Same goes for India . . . and Brazil, and the Middle East, and the rest of Asia . . . I think you get the picture. "Peak Oil" is an often discussed, often misunderstood theory, but the facts are fairly clear: most honest people don't expect to find some huge untapped oil field in the near future. And, as long as demand for oil doesn't decrease dramatically the story for $150/barrel oil is still intact. I'm personally of the belief that demand will soften at these prices and with a general global economic slowdown, but I do think the longer-term story is still intact.


Hat Tip: WSJ