Wealth buildingHas The Oil Price Topped For Good?
Quite a while ago I predicted that crude oil prices would top $130 per barrel in 2008. My forecasts were correct. Crude oil topped around $147 per barrel a few short weeks ago. Since that time, the price has fallen dramatically to around $113 per barrel today.
Are prices going to stabilize here? Will prices fall further? Or is this just a temporary correction in an ongoing trend of ever increasing oil prices?
My opinion is the latter.
Here are some facts:
1. Production at Mexico's giant Cantarell oil field is falling dramatically Crude output from Cantarell, the world's third-largest oil field, is falling at the fastest pace in 12 years, down a stunning 34% in May, 2008 from a year earlier, or a loss of more than 540,000 barrels a day.
I had originally thought that Mexico's oil exports could halt by the end of 2010. It seems that I was too optimistic. Recent reports are that Mexico's internal demand coupled with the shrinking supply are creating the conditions for Mexico to switch from being a net exporter to a net importer much sooner than 2010.
Naturally, falling production is curbing exports to the U.S., which buys about 80% of Mexico's oil exports. Sales to the U.S. tumbled to 1.07 million barrels per day in May, 2008 from 1.4 million barrels per day in September, 2007.
2. World demand is growing rapidly. Here's a fact that you probably were not aware of: the United States actually exported more than 300 million barrels of oil last year. Given the political talk about decreasing our dependency on foreign oil, it's an oddity, indeed, that the oil companies would be selling domestically refined gasoline, diesel fuel and other products overseas. Why not just sell it domestically? Because other countries are willing to pay, simple as that.
Half the world's population is now emerging out of their poverty onto a plain where they need oil just as much as the developed world. $2,500 cars are now becoming available in China and India and the rest of Asia. More than 20,000 new cars per day are being sold to Chinese citizens who have never owned an automobile before. Additionally, a steady 10% GDP growth per annum is predicted to continue for the next decade at least, confirming that demand for oil will not slow at all but continue to increase even more.
Other factors include the recent military actions in the country of Georgia, tensions with Iran, and the sinking value of the dollar on the world currency market. Even without these factors taken into consideration, it is not hard to imagine oil prices topping their recent record of $147 per barrel.
It could even happen before Christmas.