Oil prices haven't risen 5 fold at the consumer level in the last 6 years. It's about double at my pump (bad enough). And crude prices are still below the last peak in 1981 correcting for inflation. Cherry picking a brief excursion below $10/bbl when Saudi was flooding the market to spank the OPEC cheaters (1998) isn't the right point to start basing comparisons from.
At least look at the average from 1990 to 2000 which I is more like $18 using refiner inputs (see http://www.eia.doe.gov/emeu/aer/txt/ptb0521.html ). WTI would be higher (guessing more like $20). So far this year we are averaging about $50 so up about 2.5X in nominal terms and less given inflation.
Mogas hasn't been below $4/gallon in Europe since 1985 and yet I've never seen Paris, London, Rome, Madrid or any other European capital without the same traffic jams we have here in the US. No doubt oil production is peaking. No doubt oil price is going up. We're likely to have a recession a la 1980 but the world isn't going to end if the US has to pay $3.50 for gas.
Oil could very well touch $100 at any time but is that a fair question? Shouldn't we be concerned if it's going to stay there instead of ramping up and then crashing back down to $40? I'm much more a believer in a series of ever higher waves rather than a straight move to $100 and no retracement.
The rubber band is very tight especially given all that hedge fund money chasing a play in the futures market. Forward diesel/heat is where the big bets seem to be being placed. One real shortfall in a big producer due to strikes or politics or war and up up and away. $100 is only a 65% increase from here. But I lived through the last excursion up to that price level and got by. My V-8 gas guzzler just didn't go out as much as before the price spiked. And as soon as I had a real paycheck, it went to the junkyard where it belonged after being replaced by a 25 MPG Mazda 626.
Also Saudi Arab Heavy isn't all that much worse than Arab Light. I can give you the yield curves if you want. Since virtually every refinery is running full out at these margins, producing more AL is no more useful than producing more AH. There's already plenty of crude out there relative to capacity to refine and capacity to hoard. Otherwise, crude prices would be in backwardation rather than the shallow contango you see on the screen.
There is no real shortage right now. Only a palpable fear that there will be one. This could end up very very ugly for the longs if we have a warm winter and/or a Chinese recession for some reason. The one thing I experienced over and over trading oil is that when everybody thinks they see a sure thing, it prices in instantly and you can get your ass handed to you very quickly.
On the crude side, prices were in the 10-12$/bl range for a couple of months, so I am technically right but I will agree to the cherry picking qualification. Still, taking 15$ or so as a low level seen in 98-99 does mean that we have seen a fourfold increase in the price of crude since then.
As to whether oil will stay above 100$ immediately or will swing down, I honestly cannot tell, although I think that it soon be durably above that level. For the time being, I am only betting on a spike if necessary - a one second three digit price for any crude oil index will be enough (and symbolically it will be pretty significant as well).
I am putting a fairly close deadline, so we can all be there together to celebrate my predictive powers or not! Maybe we should start a diary to give suggestions for my penance if I lose the wager! In the long run, we're all dead. John Maynard Keynes
