$100 Oil: getting past the novelty value.
It was news when the price for a barrel of crude oil first hit $100, but mostly for psychological or symbolic reasons. Indeed, the first $100 bid was a single symbolic bid, not a flurry of genuine, price-signaling bids.
Now, though, the novelty value has worn off. Oil took some weeks to slide back from $100 to below $90, then climb back to the triple-digit mark again. Today it has traded in the $101 - $102 range, which means not only that it has set new record highs, but that traders are operating above $100 for non-symbolic reasons.
As much as we might like to think that markets operate with nothing but cold logic to drive them, the fact is that they respond to human decisions — and humans are often emotional and sometimes irrational.
At this point, a lot of rational actors have decided that a barrel of oil is “really” worth more than $100. With that psychological price barrier well and truly breached, it won’t surprise me a bit to see oil run much higher, especially if worldwide financial and geopolitical indicators continue to go the way they have been.
(Image by weirdvis.)
Category: Economics, Energy3 Comments so far
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Oil will never go below $85 again. In 2010 oil will be over $250 a barrel and gas will be $10 a gallon. Even though reserves are rising which should make oil prices drop the fact they don’t drop in price is because the political tensions are rising. With that you will either buy a hybrid which will still be expensive to operate or ride your bike or take the public transit. There are ways to reduce your fuel cost.
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