Are oil prices dangerously low?

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As the immortal Larry King would say, “This, we don’t need.”

One of the few benefits of the recession has been the drop in oil prices. Global oil markets are flush with crude now, primarily due to massively decreased demand, and prices have plunged to around $50 per barrel. But all that could change in a hurry, says one veteran oil industry analyst.

Matt Simmons, founder of Simmons & Co., a Houston-based investment bank, argues that aging oil fields and the credit crunch are likely to lead to a spike in prices that could exceed last year’s highs, and sooner than we think, Reuters reported Thursday. In the summer of 2008, oil hit a record $147.27 per barrel amid the leveraging bubble.

Why today’s low oil prices could be bad

“We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away — it will be much sooner,” Simmons told Reuters. “These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike.”

It should be noted that Simmons supports the “peak oil” theory, which argues that world oil output is approaching an irreversible decline.

Daily Finance