Double or Nothing: Oil Prices Heading for $200 a Barrel?

by Robert Farago

Published: January 8th, 2008

double or nothing oil prices heading for 200 a barrel

Wow, that's some kind of price jump. You might even file it under scarcely credible alarmist prognostications. But there it is. "Options to buy oil for $US200 on the New York Mercantile Exchange rose 10-fold in the past two months to 5533 contracts, a record increase on any similar period." The Sydney Morning Herald casts its journalistic net to find experts who say you ain't seen nothin' yet. "One hundred dollars a barrel is actually 14.9 cents a cup, so we're still talking about oil being remarkably cheap," said investment banker Matthew Simmons. Inventories "are tight as a drum and I don't see how we get out of this box." It's all about rising demand chasing static supply. "We haven't got to $US100 on just a whim," said Paul Horsnell, the head of commodities research at Barclays Capital in London. "This is at heart also about longer-term concerns that supply capacity investment needs higher prices to keep up with demand growth." Needless to say, if U.S. oil prices spike to $200 a barrel (29.8 a cup), truck-heavy U.S. automakers will go to the wall, double-quick. Detroit is a city of crossed fingers… [thanks to David Holzman for the link]

Robert Farago

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Engineer on Jan 09, 2008
No matter what happens to the price of oil, our military entanglements in the ME at the very least remain stable. So the “true cost” of oil is not only the world spot price, it is the WSP plus our military obligations (present costs plus all future costs such as lifetime care for the wounded, etc…). Good question. Here's one answer: the Iraq war apparently costs ~$275 million per day There are many other costs not included in this figure, of course. Nonetheless, US oil consumption is about 20 million bbl/day. US oil imports is about 13 million bbl/day. In the first quarter of 2007 Iraqi crude oil production averaged 1.95 million barrels per day. So depending how you slice it, here's what you get: 1. We pay ~$14/bbl of oil consumed. 2. We pay ~$21/bbl of oil imported. 3. We pay ~$141/bbl of oil produced by Iraq! Bottom line: Next time you get a bright idea, Dick, take someone quail hunting, please!

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Jurisb on Jan 10, 2008

Oh you naive people! The only reason fuel prices are so high, is because they can! As oil is unsubstitutable item, and increase of price will still make sales of all oil production, the trend is inevitable. That`s why making a photo of your teeth costs 200 bucks( can`t avoid dentists!) but developing a picture just cents( because you can refuse to do it!). So we live in a world of 100 buckd /barrel oil and forever low priced coca-cola, because if they increase price for Coke, you will always find a cheaper substitute, or refuse to buy it! If it had something to do with costs, exxonmobil wouldn`t have 34billion dollars of profit for the previous year! Profit, not revenues! try arguing with me! prove me I am bull!

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Jurisb on Jan 10, 2008

engineer- we even don`t need to invent how to call names Dick Cheney. :)

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Humourless on Jan 10, 2008
Here in the Greater Toronto Area its around 1.O3 a litre =3.82 a US gallon.Unless your rich it hurts. It impacts what you drive,and where you drive. I beg to differ. My Civic puts about 550km per week on it. At 7.7 litres per 100km average fuel economy (observed), that's about $44.00 a week in fuel. We're hardly rich, yet I consider that a relative pittance. $44.00 won't even buy you a decent meal for two with drinks and a tip. Besides, even if gas were, say, $0.75 per litre the weekly cost would only be $12 less. Two Venti lattés at Starbucks would cost that, once you include GST and PST. Gas would need to be a lot higher before I even raised an eyebrow.

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