Next stop $200 a barrel
Source:Editor's Blog
When Goldman Sachs starts to talk about the possibility of oil doubling in value over the coming year – and let’s face it the market has been jumping like Zimbabwean inflation - there’s serious cause for concern. The hike in prices is a complex phenomenon, only partly attributable to supply and demand: a falling dollar and heavy speculation by investors are major factors too. As long as world demand is unaffected by the price OPEC won’t feel obliged to increase supply.
High demand is good from companies that benefit from their customers’ need to buy and install deepwater, sub-sea production systems. The majors are now looking at assets that used to be uneconomical and there seems little doubt that for the time being demand for oilfield services will be very hard to meet, investment attractive and profits high.
The threat to these companies in the mid to long term is real, though. Apart from the direct effect of energy inflation on world food prices, already threatening political stability in some markets, alternative energy sources are also looking more attractive to investors. The effect of this will be to spread investment more widely across the energy sector. Unless it develops energy other sources of than oil, the US economy will face new crises in the future, Ben Bernanke warned the Joint Economic Committee of Congress on April 3.
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