No Relief in Sight as Oil Prices Rocket

November 12, 2007 05:26 PM
by findingDulcinea Staff
The cost of a barrel of crude oil hit a record $98.02 on Nov. 7, spurring observers to ask why hydrocarbon commodities are trading at increasingly high prices and when this upward trajectory will end.

30-Second Summary

The cost of a barrel of oil flirted with the century mark on Nov. 7, trading at a record high of $98.02 during Asian trading hours.

The falling U.S. dollar and the credit crisis sparked by problems in the sub-prime mortgage market are causing commodities traders to move their investments into oil. This is seen as a more secure investment during times of economic uncertainty.

In turn, rising oil prices force the greenback’s value even lower, as more investors are drawn away from the faltering currency toward crude.

Adding to the pressures created by the weakened U.S. economy are fears about supply over both the short and long term.

An Oct. 26 report from the U.S. Department of Energy stated that oil inventories were down by 5.3 million barrels from the previous week. There is also speculation about the possibility of a Turkish incursion into Northern Iraq and American military action against Iran, which are prompting buyers to anticipate a bottleneck in the market.

Then there are the less transitory worries. Some analysts postulate that world oil reserves will soon hit the “Hubbert peak,” the maximum point of profitability. From then on, extracting oil will become harder and more expensive.

Exacerbating all these problems of supply is the growing demand for oil from the developing markets of India and China.

As to what the future holds, The New York Times reports a pessimistic forecast from Ric Navy, an energy analyst at bank BNP Paribas. Navy said, “Have we seen the ultimate highs? I wouldn’t think so.”

Headline Links: Oil prices hit all-time highs

Opinion & Analysis: Is there enough oil to go around?

Key Players: OPEC

Reference Material: Extraction technologies and ‘peak oil’

Related Links: Alternative fuel sources, the flagging U.S. economy and political strife in the Middle East

For more information on the falling dollar, see the Beyond the Headlines story “When the Loon Soars Higher than the Eagle."
For more information on the sub-prime mortgage crisis, see the Beyond the Headlines story “Lenders and Home-Buyers Long Deaf to Mortgage Warnings.” 

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