New Year Opens with Oil at an All-Time High

January 03, 2008 03:20 PM
by findingDulcinea Staff
Oil prices reach $100 a barrel, raising questions about the sustainability of the economy and diminishing hydrocarbon supplies.

30-Second Summary

After months of hovering in the $90 price range, oil prices finally reached $100 per barrel on Jan. 2.

The violence in Nigeria and northern Iraq, important oil-producing regions, has played a part in this. So too has a report released by the Organization of Petroleum Exporting Countries (OPEC) saying that the 14-country bloc may not be able to meet global demand by 2024.

The immediate concern among economists and consumers is whether the cost of oil makes a recession in 2008 more likely.

Analysts such as David Wyss, chief economist for Standard & Poor’s, argue that energy is not a major concern for much of America. “So far, consumers have done an amazing job of ignoring high oil prices, not to mention falling home prices,” Wyss says.

Lester Lave, professor of economics at Carnegie Mellon University, says that in 1981 some 14–15 percent of U.S. gross domestic product was spent on energy. Now that figure stands at a mere 7 percent, rising oil costs are less of a danger to the American economy.

That said, the Dow Jones Industrial Index dropped 220.86 points on the day oil hit $100 a barrel.

Indeed, some are not at all sanguine about the medium-term outlook for the U.S. economy. Blogger SocraticGadfly wrote, “You can just write the word ‘recession’ in on your summer 2008 calendar.”

If the world’s oil supplies have, as some believe, reached their peak in production, oil prices are only going to rise as producers look to more expensive methods to procure harder-to-reach supplies. The fear that the world has arrived at that point was echoed by the latest OPEC report.

Headline Links: Oil hits $100 a barrel

Background: Oil prices in 2007

Key Players: OPEC

Opinion & Analysis: Oil price forecasts

No cause for alarm
Alarm signals

Reference Material: Peak oil theory and fuel efficiency


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