Is Oil Really Worth $100 A Barrel?

By: ispeculatornew
Date posted: 11.24.2007 (4:30 pm) | Write a Comment  (2 Comments)

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The price of oil continues to drive towards $100 dollars a barrel but what is it really worth?

Every time I read an article about the price of oil it seems the fundamentals of supply and demand are left out. The stories always mention some sort of potential problem that can happen: the potential for a conflict with Iran, potential supply disruptions, etc.

It seems every minor event that is bullish for rising oil is mentioned and any bearish factor is left out. There is always an oil trader or analyst quoted as saying the price of oil is going to go up. However, there is never a discloser about whether that trader or analyst is “long” oil and therefore has an agenda to see it go up.

The actual supply of oil inventories compared to the previous year or future years is barely ever mentioned.

I haven’t seen any mention in of oil inventories in the last few articles I read so I did a Google search of U.S. oil inventories. The top search result that came up was from a summary of weekly petroleum data for the week ending November 16, 2007.  It stated “at 313.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.”

It seems oil inventories are currently above average, but what about the future? The U.S. and world economies are predicted to slow down in the next year so the demand for oil should start to weaken. Also, the price of oil has been trading at historically high levels for a few years now. I would think more supply would be coming on line by now to take advantage of the high prices.

So why has the price of oil appreciated so much this year? I think most, if not all, of the rise is due to speculators that keep driving the price of oil up. I think traders have seized upon the momentum of higher oil prices and until there is a sentiment change, which I don’t think is too far off, I believe oil is going to trade at very inflated levels.

I remember when oil was trading at sixty to seventy dollars a barrel there was a “terror premium” of around fifteen dollars built in to the price of oil due to the conflict in Iraq and other potential conflicts in the Middle East. This “terror premium” never went away and who knows how much of a “speculator premium” is built into the price of oil currently.

I am by no means an oil expert but I think the current price of oil is trading at highly inflated levels and it seems the media that reports on oil has an agenda to keep it that way.

Discloser: I have no position in oil futures.

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2 Comments

  1. Comment by feelinit atthepump — November 26, 2007 @ 3:40 pm

    I don’t recall when the media quit quoting the price OPEC was charging the US for a barrel of oil and began quoting the oil futures price on the New York Mecantile Exchange. The former was a relative steady price, while the latter fluctuates constantly and is obviously being driven up by speculators and investors trying to make a buck off of the fears of declining inventories, wars, or natural disasters. (remember Hurricane Katrina?)

    Now for a naive question…
    Does the price of a barrel of oil on the NY Merc correlate to the price our US Gas companies pay for the oil they import? In other words, do we pay more at the pump because of this speculative price?

  2. Comment by thedocument — November 28, 2007 @ 8:24 am

    The way the Fed is printing money these days, I’d ask the question reflexively: is $100 really worth a barrel of oil? The answer is “probably not.”

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