Crude oil price likely to hit peak [but not adjusted 1979 peak]

FT.com ^ | 10/28/2008 | Javier Blas

[sionnsar]

Crude oil prices appear increasingly likely to hit the real terms record, reached during the second oil crisis in 1979, as nominal prices soar above $90 a barrel.

West Texas Intermediate crude oil has risen to a nominal all-time high of $92.22 a barrel on a combination of renewed geopolitical tension over Iran’s nuclear programme, weakness of the US dollar and low inventories ahead of the winter.

In real terms, adjusted for inflation, oil is at its highest price since the early 1980s but still below its modern historical peak – equivalent to about $100-$110 a barrel in today’s money – reached in late 1979 after the Iranian revolution.

Oil traders said that strong speculative flows, Middle East tensions and supportive fundamentals could push crude oil prices towards, if not above, their real term record.

Even so, some analysts remain dismissive about the potential impact of reaching such a level, as the factors behind the price increase are different.

Adam Sieminski, chief energy economist at Deutsche Bank in Washington, said that the current price increase, driven by demand, was different from the 1979 crisis. “That crisis was driven by a supply shortage and turmoil in the Middle East. That has wider implications on business and consumers’ psychology.” Royal Dutch Shell’s chief financial officer, Peter Voser, also last week said that record oil prices were being driven by speculation and political tension, not a lack of supply.

There are also discrepancies among energy economists on which level represents the true adjusted record as West Texas Intermediate futures did not exist in the early stages of the second oil crisis, in 1979. That obliges to use for the calculation other crude oils streams that are not exactly comparable.

There is also disagreement about which inflation measure should be used to adjust the price – world inflation or US inflation. But most agree that $100-$110 a barrel will represent roughly the real terms record.

A measure taking account of the evolution over time of the rich countries’ per capita income has crude oil prices well below the adjusted record. G7 per capita income is now sufficient to buy 456 barrels of crude oil, well above the 320 to 350 barrels between 1980 and 1982.

To bring G7 purchasing power down to this level would require oil prices rising to between $120-$130 a barrel, according to Deutsche Bank.

[familyop]

"Crude oil price likely to hit peak"

I doubt that. We'll see what oil prices do, as Iran, Syria, Sudan and other such nations build nuclear weapons.

Production has pretty near peaked, though.

[TWohlford]

Another measure would be the inflation-adjusted dollars required for the average person to buy a week’s worth of fuel as a percentage of income.

There are exceptions, but most of us are driving vehicles that are much more fuel efficient than those we had in 1973, and live in homes that are much more efficient, etc.

In 1979, I had to pay $30 to fill up a Chrysler that got 11 mpg for a range of 275 miles. That’s roughly $90 in today’s dollars. Now I pay $30 for a car that gets 30 mpg, with a range of 400 miles.

In addition, the overall income level of most Americans has risen.

[Revel]

Oil at 93.025 right now.
The dollar has tanked as low as 76.89 tonight (Record lows)

Brought to you by a crooked fed, crooked banksters and mortgage companies, and politicians who just love to spend other peoples money even it they have to borrow it.

And the rest of the credit mess has yet to unwind.

[sionnsar]

There are exceptions, but most of us are driving vehicles that are much more fuel efficient than those we had in 1973, and live in homes that are much more efficient, etc.

I'm an exception, in part. In '73 my car got 42 MPG across the board (and I was offered much more than I'd paid for it new in '72). My current car passes 30 MPG only on freeway trips.

[sionnsar]

and politicians who just love to spend other peoples money even it they have to borrow take it.

You were too kind.

[Don W]

Genuine curiosity, what were you driving in 1973?

[Revel]

Well that too....LOL

[Revel]

In less that 20 minutes. Oil up to 93.15

[brydic1]

And I might add Gold (Dec) is closing in on $800 per oz as I type this.

[investigateworld]

Actually, fuel is still very cheap. I was in New York last summer and the market had carrots from California. Per the produce guy, they're trucked in via reefer trucks every day.

And coming from Cali? A high cost state and local produce couldn't compete?

[Revel]

For sale: 2 million empty homes

http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm?postversion=2007102612

[brydic1]

What is happening now could be the beginning of the greatest inflation since the Weimar Republic and this one, if it actually comes about, will be worldwide. This administration as well as previous administrations are to blame. Many of us thought that we were getting a conservative as president when we voted for Bush in 2000 but what we got was nothing more than a continuation of the democrat policies of spend and elect except that the GOP party will not be reelected in 2008 nor for a very long time. The republican party has betrayed its principles and its membership. GWB has most probably presided over the decline of conservatism in the US for many years in the future.

[DemEater]

“Crude oil price likely to hit peak [but not adjusted 1979 peak]”

Unless they do. Or they don’t.

[thackney]

Production has pretty near peaked, though.

I doubt that very much. High prices make more oil economical to produce. It pays to increase enhanced oil production from known reserviours with existing infrasturcture. It pays to expend money on ultradeep offshore oil production.

High prices pays for lots of new technology and development.

International Energy Outlook 2007
Chapter 3 - Petroleum and Other Liquids Fuels
http://www.eia.doe.gov/oiaf/ieo/oil.html

[sionnsar]

Genuine curiosity, what were you driving in 1973?

Honda 600 Coupe. Fun little car, quite agile (I dodged a couple of accidents that a larger car would not have been able to), and for all that it was inexpensive it was running well on original engine when stolen at 170k miles.

[mysterio]

Cool. Let's borrow more money and import more expensive energy. /s

Our leaders should lose their jobs for not putting us on the road to energy independence.

[familyop]

...well said! I was focused on the most common kinds of production. But we’ll see as to how things turn out with Venezberta (Alberta—just hiked royalties) and our trust in Iran’s management of nukes.

[familyop]

An increase in production over the next 20+ years of about 7 million barrels per day won’t likely help a whole lot.

There is the fact that our country uses over 20 million barrels per day now (from yearlies), and nearly half of our consumed crude is imported from other countries (monthly, crude only).

http://tonto.eia.doe.gov/dnav/pet/pet_move_neti_a_epc0_IMN_mbblpd_m.htm

“In 2004, the three countries that consumed the most petroleum products were the United States (20.7 million barrels per day)”

http://www.eia.doe.gov/neic/infosheets/petroleumproductsconsumption.html

[DownInFlames]

We are about to see Jimmy Carter II starting either with this Admin or the next whether Pubie or Rat. With high oil prices, everything will increase to the point where we will see dbl digit inflation and record interest rates again.

We have too many taxes, too big a Government at all levels and wages not rising fast enough to keep up. Just wait until this next summer - $5.00 per gal and our economy will be toast.