Record oil price sets the scene for $200 next year

With many commentators now on holiday the record $75.78 oil price last week was almost ignored. Yet with the world economy still hot the scene is set for a powerful rally in oil prices and the equally inevitable price spike. So will we see oil hit $200 a barrel in 2007?

Nobody ever really knows the future. All you can do is extrapolate from past examples and look at the positive and negative factors and weigh up the most likely outcome.
Oil is now close in nominal terms to the previous peak oil price in 1980. But the inflation adjusted oil price would be two to four times higher, depending on which misleading inflation index you choose to follow. So that would imply a rise to $160-$320 a barrel just to account for inflation, and $200 is on the low side as a forecast.

Economists are presently not factoring in any such possibility, and this oil shock to the financial system would have huge consequences. We are talking a Wall Street Crash and chaos in global financial markets.

At the same time oil supplies are not growing much this year. All sorts of capacity strains are apparent from refineries to worries about major oil fields beginning to vanish, such as in the North Sea.

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