Thoughts About Oil

Various thoughts and information about the price of oil and it’s impact:

  • Prices of a barrel of crude oil:
  • One year ago: $136/barrel
  • February 2009: $45-50/barrel
  • Early June, 2009: $73/barrel
  • July 8, 2009: $61/barrel
  • In another example of the unpredictability of the financial markets, the price of crude oil has dropped for 6 straight days, declining by 16% during these 6 days. That is a huge change. I don’t think that two weeks ago, anyone would or could have predicted this steep decline over such a short time period. The lesson for investors should be that you cannot predict the future accurately (and then try rely on these predictions for investment decisions).
  • The steep decline was partially a reaction to the increase in unemployment figures that were released last week. The thought was that if more people are unemployed and companies are not hiring, there will be less demand or use of oil in the future. Based on supply and demand basics, with less anticipated demand, the price would go down.
  • However, the drop in the price of a barrel also means that gas prices will go down. For our economy, this is good. Consumers will have more to spend on things other than gas. The cost that companies will incur will also be less, which is good. The downside to reduced oil prices is that reduces the movement towards more efficient vehicles and investments in alternative energy.
  • Other interesting items:
  • Saudi Arabia cut the official price for exports to the US on Sunday. The Wall Street Journal indicated that this would mean more oil being shipped from Saudi Arabia to the US.*
  • OPEC future demand estimates have declined. They predict a decline in 2030 oil usage to 105 million barrels a day, which is an 8 million barrel decrease from the same estimate a year ago (a 7% decline).*
  • OPEC’s demand forecast for 2013 also dropped by 5.7 million barrels a day. *

* Wall Street Journal, Oil’s Rational Retreat, July 8, 2009

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