Brace yourself for oil at $200 a barrel

Goldman Sachs made the headlines earlier in May when its analysts predicted oil would spike past $200 “in six months-to-two years’ time”. The only surprising thing about the statement was that other experts had been saying exactly the same thing in 2005.

Quoting a study by the London-based Oil Depletion Analysis Centre, the Energy Bulletin said oil was “far too cheap” and should be priced about $182 a barrel. This was three years ago. It says a diverse range of oil industry insiders

Though Middle East oil producers maybe rubbing their hands at the prospect of bumper revenues, the concern is that if oil prices soar, it is likely that globalisation will founder and world economies will become much more local. Consumers will be incentivized to consume locally; where we work and where our children are schooled, too, will need to be close to home. We might end up in a world that rapidly contracts. Dubai’s tourism plans, for one, will be hampered.

Oil this week went past $135 a barrel for the first time. Oil prices have now risen more than 25% in the last four months and 400% since 2001.

According to the Financial Express, the fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of the year. It says options to buy oil for $200 on the New York Mercantile Exchange rose 10-fold from December 2007 to January 2008 to 5,533 contracts, a record increase for any similar period. The contracts, the cheapest way to speculate in energy markets, appreciated 36% since early December as crude futures reached a then record $100.09 on January 3.

Kipp Report