The price of oil has nowhere to go but up

ROME — It’s amazing how quickly we’ve become accustomed to expensive oil. But what is expensive? When oil climbed to an all-time high of $147 (U.S.) a barrel in July, our oil-addicted planet seemed on the verge of economic suicide. Then came the selloff. The current price of $100-and-change seems a bargain, even though it’s quadruple 2003’s level and almost 30-per-cent higher than a year ago.

The hope among consumers, businesses and politicians, if not the green crowd and the oil industry itself, is that prices will keep falling and that $100 a barrel will once again seem unimaginably high.

And why wouldn’t they be right? Oil demand in North America, Europe and the other oil-guzzling bits of the world is falling as those economies take a hit. The speculators made their killings and have fled to their villas, removing the froth from the energy markets. Saudi Arabia has opened the spigots and a new generation of gas-sippers is rolling into showrooms. And didn’t we see you walking to Starbucks the other day instead of practically ramming the counter in your Ford Explorer?

So relax. Barring a fresh shooting war in the Middle East, the new “expensive” might be something like $90 a barrel and the new “normal” $60 or $70. We could live happily with those numbers even though we remember the days, not so long ago, when a fill-up cost no more than a case of 24.

Dream on. In a year or two, perhaps well earlier, $100 could look cheap again. You’ve got to ask yourself: What has changed since the selloff began a couple of months ago? The economy, globally speaking, is still growing. Many of the biggest oil fields are wheezing like geriatric smokers and few new discoveries of any significant size have been made. In the end, economics, oil geology and oil-reserve physics will determine the price of petroleum. All these forces point to higher oil prices.

Globe and Mail