Thursday, May 22, 2008

Solving the $130 oil conundrum

When oil was $10 a barrel, the idea that the stuff was running out seemed demented. What a difference a decade makes. It is now possible to make the case that global crude oil production has nowhere to go but down. While that disaster scenario remains unlikely, it is hard to see a comfortable adjustment to oil near $130 a barrel.

In the near future, there is no saying how high the price may go – forecasting $200 a barrel is a nice way to get some headlines. Such forecasts may come true because in the short term there is little scope either to reduce demand or to increase supply, so it would not take much to drive prices higher.

There is no doubt that the world will adjust to high oil prices. Yet the adjustment would be far easier if oil producers discovered that they could expand their output.

NVDL: I believe there is a LOT OF DOUBT whether or not we can adapt to these prices.

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