Cheap oil may be history as $100 becomes norm

Don’t expect prices to cool down anytime soon.

“There does not seem to be an answer for a return of ‘cheap’ oil,” said Thomas Hartmann, an analyst at Altavest Worldwide Trading.
The main culprits behind oil’s record run have been the usual drama in demand figures, ongoing swings in global supplies and changes in the value of the U.S. dollar. Whether China, following the devastating earthquake Monday, will contribute or take away from the rally is another factor.

Still, the current record for crude futures at nearly $127 a barrel is “bloated,” said Charles Perry, president of Perry Management, an energy-consulting firm.

Analysts have said that $20 or more of the crude price is likely from speculation in the market, he said.

Historically, short-term corrections in the crude market are usually in the range of $10, and corrections that last several days are in the $20 range, he said. “So even with a high correction, I see little chance of the price going below $100.”
In fact, Perry said he suspects that $100 “is now a psychological floor, just like it used to be a psychological ceiling.”

Hartmann sees a floor price for oil between $90 and $100.

“Eventually oil could head lower than that as more alternative energy sources come online, consumers change demand habits, and if/when the dollar recovers,” he said. “But until the majority of cars run on hybrid or electric engines and nuclear power production becomes standard, energy will remain expensive in all forms.”

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