Why Oil Prices Are Not Going To Fall……
evawhite on May 26th, 2008
Yes my dear reader. High oil prices are here to stay. You ask why but the price of oil has run up so much lately? Well, there are two reasons for that, one is speculative and second is fundamental. I will go through both the reasons so you may have a better understanding of what is happening with oil.
Speculative rise. Oil is a publicly traded commodity which can be traded by you and me in the form of oil futures. If you have access to enough money then you can drive up the price of oil all by yourself. Which is the meaning of a publicly traded commodity. Anyone can buy anyone can sell. With the recent fall in the stock markets world over people started seeking shelter in commodities, they got their money out of the stock market and started buying oil.
Fundamental aspect. Oil has never run up so much. It was stable for decades. Why was it stable for decades and run up only now you ask? Because of demand and consumption of the oil fields simply put. The true scenario is that easily available oil is running out. We have all seen pictures and videos of oil gushing up. The typical ‘hit oil’ phrase was coined then. There was a lot of oil easily available so not too much infrastructure was required. Now those oil fields are depleting and pumps and other mechanisms are being employed to pump out oil which was gushing out by its own pressure.
The world is not running out of oil no no .. Its just getting more difficult to extract. Like for example the recent find by oil company Petrobras in the South Atlantic may contain 8 billion barrels of oil and gas. It is however at the bottom of the ocean bed, which is 7000ft to get to and a further 17000 feet from the ocean floor through sand, rock and a massive salt layer. That is going to be expensive.
This is one example, companies world wide are now investing heavy amounts of money to tap these sources. It is going to be expensive for them so oil is going to be expensive for us. The only good thing coming out of all this is the now fast-tracked development of alternative technologies, which for all these years the oil companies lobbied against is now open to development. Expect more electric and hybrid everything!
