Oil Price Will Reach $250 In 2009
87On June 10th 2008, the chief executive of the world's largest energy company, the Russian gas monopoly Gazprom, predicted that oil prices will reach the striking figure of $250 per barrel in 2009. Mr. Alexei Miller's prediction, given at the speech to the European Business Congress in Deauville, France, goes well beyond any previous prediction by the most notable economists and analysts as well as the big corporations, who predicted oil prices to hit $150 up to a maximum of $200 per barrel.
"Today we are witnessing a very great change of hydrocarbons. The level is very high and we think oil prices will reach $250 in 2009", said a company spokesman.
Isn't it surprising how much oil prices have changed in less than a decade? In 1999 oil was at an all-time low of $10 per barrel, and since then prices have increased by a surprising 1300% and this trend seems to be going to continue for the next 2-3 years according to analysts. One thing is sure, the years of two-digit numbers are now history, and with the weakening dollar oil charts will continue increasing.
Many are skeptical about Mr. Millers statement, but let's have a look at what really causes oil prices to skyrocket.
Crude Oil Prices (1994 - 2008)
CAUSES OF INCREASING OIL PRICES
Demand
Demand for oil has increased exponentially during the last decade mainly due to developing and expanding countries such as, and in particular, India and China, as well as Russia. In China for example, oil consumption has been growing by 8% since 2002 and has doubled from 1996 to 2006. With a population of 1.3 billion people and an annual economic growth rate of 10%, China's thirst for oil is going to augment for at least another decade. India is now being even more demading as it has just started emerging as a potential international economic power.
Furthermore, considering that the world population is growing at a rapid pace of 50 million people a year, this factor alone will force oil prices to keep increasing for the next decade.
Supply
Another relevant contributor to price increases has been the slow down in oil supply growth since oil production surpassed the new discoveries in the 1980. This seems to be confirming CEO Alexei Miller saying that "we are witnessing a very great change for hydrocarbons". Crude Oil and Natural Gas are the two main hydrocarbons in use and many predict that the reserves will be depleted in about 30-50 years. These are of course estimates, and after new discoveries are being made all over the world, such as off the Brazilian coast and in particular in the North Pole, the oil-depletion scenario is still far away. It is true though that oil suppliers are using this factor as an excuse to increase prices although by very little.
Oil Reserves Estimate
Effect Of US Dollar
The US Dollar is closely tied to oil pricing since oil is traded in dollars, thus it has a lot of influence on the black gold. This has led to concern among economists that profits earned from selling oil would decrease if the dollar looses real value against other currencies. As a matter of fact the depreciation of the dollar, resulting from the large cut in interest rates by the Federal Reserve due to the sub-prime mortgage crisis, has been the principal fator which has pushed oil prices to new record-highs. This, coupled with high inflation rates, is still the main cause behind increasing prices.
Looking back at Alexei Miller's "prediction", it seems to me that he wasn't really predicting that oil price will reach $250 in 2009; he was on the contrary warning the European governments that this wasn't just an unlikely scenario but more of a real situation. If we were to draw an exponental trend from the first graph we would realise how correct Millers statement is, assuming that the trend is going to continue increasing at the same rate.
Oil Price Trend Prediction
The trend is quite inaccurate but it is possible to draw a fairly rough estimate of how the price of oil is going to increase in the next year, assuming Alexei Miller was correct. Why believe him? Well, he is the CEO of the worlds biggest energy supplier after all, therefore he has to be the most reliable person to when it comes to "predicting" future energy prices.
EFFECTS OF INCREASING OIL PRICES
Petrol Prices
What would happen to petrol prices if oil price will reach $250 in 2009? they would skyrocket of course. In 1 year, Western Europe has seen gas prices going from an average of €1.2 per litre to €1.5 per litre with peaks of €1.6 in the Netherlands and in Germany. Because more than half of the price is due to duty and taxes, the general rule of thumb is that each $2 increase for oil means a ~1.3 cents increase of petrol at the pump. Oil at $250 a barrel would mean an increase of almost 80 cents in petrol prices, even before VAT!
In the US this would mean that price would reach European current gas prices although it would have a larger effect than it would in the old continent, as the States consumes larger amounts of gas, hence the economy would be greatly affected and a recession would be inevitable.
Other Effects
The cost of everything from food to energy would see significant price rises. Household electricity and gas bills are the most vulnerable to such prices. Most power companies in Europe and very likely in the US as well have been warning about tariff increases to balance with the increasing oil and gas costs. Food prices are greatly affecting poorer countries where most people cannot afford to buy food anymore, and an increase to $250 would mean hundreds of millions would starve to death, with richer countries having to deal with ther own economic problems.
Inflation
High inflation is the result of $140 oil; in the Eurozone, inflation is estimated at 3.7%, which is far from the 2% rate the ECB is aiming at. Countries such as China an India and Russia are also showing very high inflation rates, but the US has been the worst hit, especially due to the Federal Reserve's policy of lowering interest rates and letting the dollar depreciate. When the oil will reach prices of $200 and over, cutting interest rates even more would result disastrous to the US economy.
Overall, if the oil will hit the $250 mark, this will prove devastating to the whole world and the biggest global economic crisis ever seen would follow. Let's hope that the energy companies are wise enough to prevent this from happening.
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Comments
I hope governments realize the importance of the situation and invest in renewable enrgy sources.
nice information
Great hub. I think we're in for quite a ride.
Thanks for sharing. Very nice hub.
The implications of this information are disturbing. So many Americans commute to work and are locked into living in homes they can no longer afford. Thanks for explaining this issue in an understandable way.
It's difficult to say what oil will do, but I think we have gotten to the point where all these huge targets of $200, $250, $300 are just exaggerating things with the speculators. No doubt if we hit $250 in 2009 this economy will be in deep trouble. Let's hope all these predictions don't come true!
I do think it is difficult to say where oil will go, when other countries just a few years ago were either walking or riding bicycles. The demand is more than ever thought of before and is growing day-by-day. The idea of speculator controlling the price . . . (They might be driving up prices a bit, but $4 gas isn't their fault.)
There's no doubt that speculators are out to make money, by buying a commodity like oil (or gold, or real estate) when they think the price is likely to rise and they'll be able to sell for a profit. But they also help sustain the market for buyers and sellers and provide ways for individuals and businesses to offset risks.
Many companies, for instance, want to lock in the price they're going to pay down the road for petroleum products and other supplies they need to run their businesses. So they make agreements with suppliers on a price they'll pay next year, or the year after, when they actually take possession of the oil. Buying and selling such "futures contracts" makes these companies speculators by definition, since they're placing a bet on the future price of oil.
Companies doing this kind of hedging include gasoline refiners, airlines, shipping companies, and others that spend a lot on fuel or petroleum. Often they use investment banks or other intermediaries to arrange the deals. They might be gambling, but this kind of speculation actually helps companies run their businesses more smoothly, and if they guess right on future prices, it may give them a competitive advantage against other companies that don't plan as prudently. (Now think about your pension plan and those who manage it!)
You state that the price of oil has increased 140% over the price of $10 a barrel in 1999. This is extremely bad math. A 140% increase from $10 would leave oil at $24 a barrel. A $140 a barrel increase is not the same as a 140% increase.
^Missed that out completely, thanks for letting me know.
Wow! Its crazy with the price of Oil, well it is fair enough! I wonder if it has to do anything with the Arab countries.
There are many different perspectives to take on how the price of oil rising will change the world, our own personal worlds and the larger world itself. I don't think it matters if oil goes to $250 a barrel or not. As you point out, the supply side simply cannot grow at the same pace as growing demand. Individuals will need to change their behavior as energy prices continue to rise - my prediction is that we have just about peaked in our ability/willingness to move ourselves and our goods as freely and widley as we have. Plane travel and car travel will decrease. Globalization will take a step back and dealing locally (produce and other products) will once again become more important.
All of this will not be easy. Many people have become used to moving around at a frantic rate. There will also likely be a lot of economic pain but through time that will go away as adjustments are made.
So $250 a barrel oil? I am not sure. Who knows if I am right either? It is easy to make predictions but it is more difficult to be right.
Lupo
And Exxon will still be crying poverity!!
I wonder, 5 years ago it was around Rs.30 (Around $0.8) a litre in India and now its Rs.56 (Around $1.2). Got to see what happens in the future.
The price of oil is something we all are going to have to watch closely. It is scary to think about how this will effect our economy and individual families trying to make a living. Thanks for posting this information -- it was very educational!
yes, it will just like the gas. thay know we need it and we have it here in the U.S.A. and we should use our in our home land. but it money
Typical fear based crap. I'm addressing the media, not the bringer of this message. The only way you can keep prices rising without any ties to demand or supply is to instill the FEAR that if you don't buy today, it will be higher tomorrow.
This, of course, brings the speculators in and drives the price up further. I started touting this at oil $120 that this irrational exhuberance with oil would end just as the housing market busted.
I think this "rising demand" bullcrap was just rhetoric put out by those who wanted to "scarcify" this commodity.
Rubbish.
Its nice hub and great information about oil prices in 2009. Its an advanced news for all. Great information.
oil has fallen since then. its trading close to $60. if the crisis in US worsens dont be suprised to see it at $40. ofcourse, oil is in a bull market, but it needs to ride out of the present slow down. for oil to move to $250 in 2009 now seems a mere dream. dreams built on such high oil prices are already destroying the economies of certain oil producing countries like venezuela who went on an overspending spree.
i feel the price of $40 or near about is a certain possibility considering the global slow down, even if OPEC cuts production to boos prices.
^^I wouldn't be too sure about that; oil prices can easily go back to the previous levels if a war with Iran breaks out.
There is however the possibility of prices going further down due to the economic downturn and the recession; it is likely that oil would bottom at $30 if not $20 which would worry the OPEC countries and who knows what would happen then.
I really afriad to reach 2009.Because I live in a poor country and that's why I want to marry Saudi Billioner.Please, Help me !
DUMB SHIT OIL WILL NEVER GO BACK TO MORE THEN $60 A BARRELL THE FRUTURE TARDER S BIG SCAM IS OVER THER WAS NEVER ANY REASON FOR IT TO GO OVER $60 BY 2010 OIL WILL BE UNDER $ 40 A BARREL.
I WAS WRONG $ 40 A BARRELL OIL IS HERE TO STAY NOW NOT IN 2009 . ANY ONE WHO ONE TRYS TO INCREASE THE PRICE OF OIL SHOULD BE PROSECUTED . SPECULATERS I HOPE U SEE THIS GAS SHOULD NEVER HAVE GONE ABOVE $1.70 A GALLON I CANT WAIT FOR IT. TO HEY LETS PUT ALL THE TRADERS IN JAIL : ) LIKE JACK SAID LAST JUNE OIL SHOUL.D BE FREE ANY WAY.
OIL WILL STAY BETWEEN $ 30 AND $50 A BARREL IN 2009 AND LOWER IN 2010 : )
as on date 05th December 2008, after 6 months crude is trading at around $43 to a barrel. economic recovery is nowhere in sight. for crude to touch $100, we need a fast recovery in US,Europe and other places. Recently heard that OPEC will cut their production to boost prices. No tactic will work now. OPEC should be happy if they receive much lower price in future.
Where did you get that stupid oil reserves chart? It is missing CANADA! Canada is like #2 or 3 in proven reserves now.
Good golly - how old is this article? Oil is almost below $30 and the next stop is $17.
Astounding how the bursting of economic bubbles can change what appear to be inexorably upward trends in a period of some three months.
I too question a Oil Reserves supply chart that excludes Canada in a research article referring to oil prices in excess of $125.00 USD. per bbl.
I think it was made to boost the oil prices by creating artifical demand for oil in the market and now due to the us economy crises the demand has fallen below the average level. Too shocking for Investors bu relif for consumers!!
Well as for me, I hope oil prices go up due to the fact that my husband works in the oil field and he is now out of a job. I don't understand why people only focus on themselves all the time. Don't they realize that everyone is in the same type of need. I live in small town where the majority of jobs are oil related. All some people care about is that they have enough money to drive more and what pollute the air more at the same time.
ANY ONE WHO TRYS TO RAISE THE PRICE OF OIL AT ALL SHOULD BE SHOT
DRIVING IS A RIGHT I SHOULD COST NO MORE THEN $ 20 TO FILL YOUR TANK
I MAKE OVER $70000 A YEAR BUT I DONT LIKE $100 DOLLAR FILL UPS FUCK OPEC IF THEY TRY TO RAISE THE PRICE OF OIL THEN WE SHOULD JUST GO TAKE IT WE WILL NEVER PAY THOSE BULL SHIT PRICES AGAIN CHEAP OIL IS THE ONLY TO GO FULL SPEED AHEAD : )
This topic just hit my brain this dawn. I am not an investor but if this prediction is true then I will start investing right now for oil. But whatever happen to this gasoline prices, we should not be scared at all. We won't take shower using oil unless if you want to feel a bit slimy and also we don't drink gasoline unless if you want to get drunk~he-he. Well, let's see what will happen in the future.
So what was happend with 2009 and price 250 dollars??
Curently it is 41 USD for barell.
Oil prices will surely go up and go down, but I don't think we should focus on that. What we should focus on, instead, is ensuring that our incomes GO UP all the time. That way it wouldn't matter whether oil goes up or goes down. Reminds me of when Jim Rohn told his mentor that things cost too much. His mentor replied and said - no, things don't cost too much, just say you can't afford them! So, instead of focusing on whether oil prices will go up or not, we should focus on ensuring our incomes go up. :)
The oil prices ia about $34/b , how ever due to the world finnacial crisis , will remain at the same range till last quarter of 2009. my predcition is that by august 2009 prices will rise again and may reach above $ 120/b. i suggest that you invest in petrochemical basic industries as share prices reached the bottom these days . and such industry prices is linked to the oil prices,,
Oil will be sideway, 2009-2010 is the year for GLD baby...
Time will tell :)
And this was wrong... don't forget that pices on this market are actually artificial. Trying to predict more than short run evolution on a young trend like this is a nonsens.
we should run vehicles using solar power
Oil Prices Will Reach 250 In 2009
very good, I support you, come on , welcome to my hub!
Eric, your a dumbass
Ok, so I wont stop there. I dont know if this discussion is over since its been months since anyone posted...but as you can see oil is on the rise, quickly. Eric, making 70k a year is no big feat anylonger, I make more than that...and last year, i made more than that with my oil checks alone. Yup I'm an oil girl...so I'm one of the few who danced happily while spending 60.00 to fill my tank. Call me evil, but hey its part of our family heritage, just like in the 90's when I cried over 10.00 per barrel oil, I was happy with 140/bbl. Its a cyclic thing, oil. Up on year, down the next...its history, always will be. I can remember feeling rich as all get out when oil was at 35.00/bbl in the 90's..that was huge stuff. But now, with the cost of everything going up, its crazy to think oil wont be the same. Lets face it, not in OUR lifetimes, but probably in our grandchildrens or greatgrandchildrens lives, oil will become so scarce that we will have to find alternative avenues for oil...or alternative fuel sources. We've only really been using oil in large amounts for less than 100 yrs and do we really think its going to last forever the way we use it? heck no, its sure not. And as supply lessens, price will rise.
^^They just found huge oil and gas reserves in Cyprus extending as far east as Israel, worth $400 billion which is bigger than the reserves in the Middle-East. http://www.xak.com/main/newsshow.asp?id=48580
Then we also know there are huge reserves in the poles and other places yet to discover. I don't see oil becoming scarse anytime soon nor in 60 years.
Were getting screwed by the monopoly and big money,where is our Government to put a stopper on the outradge
How would anyone know how much oil is left in the deep depths of the earth? This supply and demand stupidity is just that stupid. The problem is speculation! Period.! Big oil got rich and didn't spend wisely, now they want it at these 100 or 200 numbers. What did you do with all that money? You didnt invest in oil drilling in other places did you?
JOReilly says:
18 months ago
Scary stuff! I never know whether to believe the hype or not. But we'd all better start preparing just in case, I think...