Crude Oil Prices
Crude oil prices have risen to an all time high as small and big investors purchased oil futures due to returns on investments that outpace other commodities and securities. The flow of investments will soon ensure that crude oil prices touch 85$ USD, although it may not be justified by actual demand. Prices of crude oil have advanced upwards by 80% over the past 12 months, which is better than the 59% increase of the Dow Jones Industrial Average.
M.A Khatibi, OPEC's governor has stated that a good price (for OPEC) per barrel of Oil would be around 100$ USD, but in determining the crude oil prices, the swings in the US dollar, global inflation, and demand and supply will be a consideration. Fund managers and large investors and speculators have increasingly placed their bets on crude oil prices rising to a new high in New York for the third week. Small Investors need not feel left out of making a profit, although on a smaller scale, by investing through Oil ETFs and adding Oil investments to their portfolio of securities.
A Long Term view of Crude Oil Prices
Till the March 2000 adoption of a 22$ - 28$ price range for OPEC's basket of crude, oil prices rarely exceeded 24$ a barrel, and this was in response to a conflict or war in the Middle East. With a limited spare capacity, OPEC was forced to abandon the price range in 2005 and was thus unable to control the rise and surge in crude oil prices.
The very long-term view of crude oil prices is almost the same. Since 1869, crude oil prices in the US, with adjustments for inflation, have been an average of 22.52$ per barrel in 2008 USD in comparison to 23.42$ for global oil prices. For more than half this time, prices in the US, and global crude oil prices were lower than the median price of 16.71$ a barrel. The results are very different if only the post 1970 data is analyzed. In this case, US crude oil prices averaged 32.36$ and the global oil price averaged 35.50$ per barrel. The average crude oil price for the period is 30.04$ per barrel.
The world today consumes 80 million plus barrels every day of petroleum products, which has added a risk premium to crude oil prices, and is mainly responsible for oil prices in excess of $40-$50 per barrel.
A few major factors that contribute to current level of crude oil prices include a weakened dollar and continued fast-paced growth of Asian economies and their consumption of petroleum and other oil products. The hurricanes of 2005 and US problems in the crude oil refinery industry associated with refining of crude oil and conversion to ethanol as an additive instead of MTBE have contributed to higher crude oil prices. One of the crucial factors that have supported high crude oil prices is the quantum of petroleum inventory in the U.S. and many other crude oil consuming countries.