Friday, March 27, 2009

Cheap oil?

I just ran into this Businessweek article from 2006 that reminds me just how expensive oil still is:

The tale of Mideast money is not just a local story, however. This year, with oil prices stuck in the $55-to-$65-per-barrel range, perhaps half a trillion dollars will land in OPEC coffers -- more than at any time since the boom of the 1970s and 1980s. The Mideast oil states alone will gather in $320 billion in oil and gas export revenues.

At that time $55-65 dollar a barrel oil was shockingly expensive. Businessweek was writing articles about this huge transfer of wealth to the middle east. After all in 2002 the price of oil was averaging $22 a barrel($26 if inflation adjusted). So the price had more than doubled in a four year period!

Today the price of oil on the NYMEX is $52 a barrel. That is exactly twice as expensive as it was in 2002. What is shocking about this price level is that we now think of it as cheap. OPEC is slashing production because many of its members simply cannot afford to produce oil at these prices. The biggest recession in my life time, and the price of oil is still quite high. If this trend holds, expect really expensive oil to return as soon as the economy rebounds.

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