Why oil won’t fall below $100

With a surge in the price of global commodities, it’s costing more to produce a barrel of oil than ever before.

NEW YORK (CNNMoney.com) — Last week, falling oil prices looked unstoppable. The last few days have seen a halt in that slide. Still with prices well below the record set in July and a shaky world economy threatening demand, the question remains: How low can oil go?

Many analysts say oil is unlikely to go much lower than $100 a barrel, and it has to do with the rising cost of production.

The overall cost to produce oil has gone up, especially oil from tough to reach places like Canada’s tar sands and the deep water Gulf of Mexico.

These areas require massive investment and materials to produce oil and that expense has risen as the price of commodities surge. And while they represent a small fraction of total worldwide production, they’re important because some analysts believe prices won’t fall below the cost of the most expensive barrel of oil.

“I don’t think it will go down below $100 for very long,” said Christopher Ruppel, an energy analyst at Execution LLC, a broker and research firm for institutional investors like hedge and mutual funds. “Once you go down too low, you’ll shut down new production, and prices will go right back up.”

CNN