Business Blog: Hoover’s Business Insight Zone

My go-to expert on oil prices is Geoff Styles, who has previously discussed the complexity in comparing oil prices on an apples-to-apples basis over the decades. (Hint: it’s not as simple as using the Consumer Price Index to account for inflation.) This post from last Friday — just before oil futures climbed to $93 — is apt reading.

Breaking The Record

…Production in the OECD countries is barely replacing the natural decline of mature reservoirs. The non-OECD output that has enabled the expansion of demand in the last several years has come mainly from projects that were planned under more attractive fiscal terms, in host countries that have since cooled towards international oil investment, at least from the western oil companies. Producing countries may be entitled to a fair share of the rent on their own resources, but they are also quite capable of killing the golden goose. Meanwhile, spare OPEC production capacity that might have been adequate a decade ago is now too small to dampen the volatility of an 85-86 million barrel per day market….

At some point, either supply or demand will give way, and prices will fall — at least somewhat.

Right? Right? . . . Anyone?

The fact that we don’t have a great answer for that is a key marker that we’re living in interesting times.