Record oil prices signal ‘new world’

Investors are placing huge bets that today’s record crude prices are headed sharply higher in the coming years, essentially gambling that scarce resources and a weak U.S. dollar will trump the age-old law of supply and demand.

As crude for near-term delivery shot past $133 (U.S.) a barrel yesterday, many analysts were more focused on the stunning price increases in futures contracts covering oil deliveries for the next eight years.
Amid “peak oil” warnings of scarce supply and a permanently weakened U.S. dollar, traders have driven future prices well above current levels, a rare pattern in oil markets known as contango.

“It seems that we’re living in a completely new world,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based risk management firm.

“There are people making the argument that we are going to see higher prices until the end of time, but I don’t believe that,” Mr. Beutel said.

“If we say that, we’re saying the most important mechanism of capitalism – the price mechanism – is effectively broken.”

Globe and Mail