Here we are again in what I like to call "the laziest week of the year." The week between Christmas and New Year's, when it seems everyone else has the week off. But don't feel too sorry for me, this week certainly has its benefits. For instance, my usual 45 minute drive down a congested I-95 was devoid of traffic. I actually arrived at work on time.
It only took five minutes of my daily email rounds to sour my festive spirits. Yet it wasn't just one article, but rather several, one right after another.
I'll spare you the pain and not go over every individual one (to be honest, they did provide me some comic relief). In a nutshell, they all had the same message: Energy prices will plummet during 2008.
Feel free to take a moment and laugh with me.
So what was their reasoning for such a proclamation? I boiled down their inflated copy to just three major reasons:
High oil prices will drive down consumption levels.
Geopolitical tensions are easing, which will lead to lower prices.
Global supply will outstrip demand in 2008.
Like I said, it was hard to take these articles seriously.
I've always maintained that you can toss everything out the window except for supply and demand, which will be the most important factor to watch in 2008. Today, however, I'll humor them.
Oil Prices in 2008
With oil prices averaging $93.19 a barrel this week (according to the Energy Information Administration's weekly oil report today), we're hearing fewer protests over gasoline prices than in July, when crude was in the mid $70 range.
And if there's one thing I've learned from you over the last year, it's that we are nowhere near the point where consumers will stop buying gasoline.
In the words of one reader, "It doesn't matter if gas costs over $5 a gallon, I still need to get around. Maybe it's time we start paying what gasoline is really worth."
High oil prices are nothing new to us. Just remember the last two years:
As far as geopolitical tensions easing?
I couldn't believe I read that.
This week alone proves how volatile the oil markets can be. The Turkish air strikes and the Bhutto assassination in Pakistan have helped push oil prices over $95 a barrel, reaching as high as $97.79 during trading today.
Now, it's their last reason that really got me started. While weather and geopolitics certainly have enough influence to push crude prices in the short term, supply and demand is what will keep them in record territory.
Mark my words, 2008 is going to turn out to be an interesting year for oil prices. Until we have some real data on OPEC's fields, I doubt any of them can significantly raise production, aside from Saudi Arabia.
If we take their growing domestic consumption and the new output needed to offset declining production from older fields into account, the question is whether there will be enough oil left over to raise exports. If you're expecting OPEC to be a knight in shining armor, get ready to be disappointed.
Until next time,
Keith Kohl
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Boy are you in for a big surprise in 2008.
You are probably right about the OPEC oil fields, all but Saudi Arabia are pumping at a max. However Saudi Arabia alone can virtually drive oil prices through the floor if they so choose to do so by opening their "flood gates".
At some point however a sanity level to pricing will return. Affordable energy is the key to worldwide existence let alone prosperity. But as long as bush is in office I see little change in oil pricing.
Please, in the future, use semi-log charts, that way a ruler line through the trend will tend to predict future prices. Each one inch verticle movement is the same percentage no matter where it lies on the chart. My entire income except for SS comes from oil and gas royalties as I am a retired independent oil producer from Tulsa, Oklahoma. At retirement, my income at age 80 is the highest of my entire life! Monthly income now approaching 6 digets!