Oil Closes Beyond $100
When Goldman Sachs analyst Arjun Murti predicted the possibility of a $105 bbl superspike back in 2005 people laughed at him. Now he’s the equivalent of a rockstar in the investment arena. Oil has roughly doubled since 2005, closing above $100 for the first time yesterday. Triple-digit oil, what many have called a psychological milestone, is capturing the attention of investors.
For example, oil and gas investments are becoming popular as a hedge against inflation. “Options to buy oil for $200 on the New York Mercantile Exchange rose 10-fold in the past two months to 5,333 contracts, a record increase for any similar period,” reports Bloomberg.
Critics claim that recent price increases are due to speculation in the market. Many consider that unlikely, given that oil is a finite commodity that is not easily interchanged with other energy sources. With renewable resources like corn, a rise in price prompts farmers to boost output so that they gain a share of the profits. When too many farmers jump on the bandwagon, inventory goes up and prices go down.
As the price of oil continues to rise, many producers are struggling to increase production. In many cases, they are unable to even maintain current levels. “Having undercut Venezuela’s oil company and scared away many of the most competent foreign investors, Venezuela’s oil output is actually declining even though today’s high oil prices would, in theory, make Venezuela’s newest heavy oil fields much more economically viable,” says Newsweek. The same is true in many corners of the world, leading many market watchers to conclude that triple digit prices will continue to be part of the economic landscape. “Inded, looking forward, it appears that triple-digit oil prices may become a regular feature of the global economy within three or four years, and soon the first digit may be something other than one,” wrote petroleum economist Phillip Verleger in an article published in the International Economy magazine. Investors and consumers (and of course Arjun Murti) are watching closely.
Published Wednesday, February 20th, 2008 at 6:39 pm and filed under Industry News.