Thursday, October 14, 2010

Global Oil Demand Seen Rising...How Soon to $100 a Barrel, or Beyond?

The International Energy Agency has released new data, showing an anticipated growth in demand for oil, due to stronger-than-expected economic growth in developed countries.  I have already seen this first-hand at the pump; as of yesterday, the two neighboring gas stations in my town were at $2.96 a gallon, which is a 30-cent increase from just a few weeks ago.  If prices are to rise again, I think we will see another round of what is called "demand destruction", and prices will crash back down, albeit temporarily.  I do not believe oil prices will climb continously upward, for that one reason.  The economy will not be able to absorb them, so we'll see crashes, and with each crash, the fallout and damage will span further and further.  But on the other hand, another reason why we could see climbing oil prices could be due to the falling value of the dollar.  This would be a "hyperinflation" scenario, and if that's the case, well, then all bets are off. 

I do think the timing of this announcement is very interesting.  Imagine if oil prices continue to spike in the coming months, leading into the holiday season?  The tough economic times are going to make this a difficult season for retailers, as things are, but if you were to add climbing gas prices into the mix?  A possible recipe for catastrophe.  A lot of people believe that the climbing oil prices in 2008 (the price of a barrel of oil peaked at $146) were a key determinant in pushing our economy to the brink.  With the economy of 2010 in the weakened condition that it is, I don't think that oil prices would have to climb nearly that far for an even worse collapse this time. 

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